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Dalmia Bharat’s Q2FY23 EBITDA declined 39% YoY/35% QoQ to Rs3.8bn, broadly in line with consensus and our estimates. Accordingly, EBITDA/ton fell 46% YoY/30% QoQ to Rs655 (Emkay estimate: Rs630). Management mentioned fuel cost peaking-out in Q2, with the cost expected to decline by around 10% sequentially in Q3FY23. The company plans to expand cement capacity to 49mt/70-75mt by FY24E/FY27E, respectively vs current capacity of 37mt. In Q2, Company added 24MW renewable power capacity, increasing its total capacity to 129MW. Management targets increasing its capacity to 173MW/328MW by FY23E/FY24E, respectively, which will lead to rise in share of green power to 35% by FY25E vs 24% currently. We marginally (by 2%) increase FY24-25E EBITDA, factoring-in a slightly better volume growth and cost efficiency; we revise our Sep-23E target price to Rs1,600 (vs Rs1,550 earlier). Our DCFbased TP implies a one-year forward EV/EBITDA of 8.5x. Due to the absence of any near-term catalyst, we maintain a HOLD rating on the stock.

Results Summary: Dalmia’s consolidated volumes rose 13% YoY/declined 7% QoQ to 5.8mt, while cement realization/ton declined ~3% QoQ to Rs5,131 – both broadly in-line with our estimates. Dalmia’s total cost/ton increased 17% YoY and 3% QoQ to Rs4,477. In H1FY23, the company generated negative FCF of Rs8.5bn, post working-capital blockage of Rs5.9bn and capex-spend of Rs11.6bn. Gross debt increased by Rs2.8bn QoQ to Rs33bn, while cash & cash equivalents declined Rs5.6bn QoQ to Rs26.4bn in Q2Y23 (MTM value of the IEX investment stands at Rs18.9bn as of Sep-22 vs Rs21.1bn as of Jun-22). Consequently, net debt increased by Rs8.4bn QoQ to Rs6.5bn. What we liked: Industry-leading cost structure; aggressive capacity-addition targets; What we did not like: Increase in debt.

Earnings-call KTAs:

1) Management maintains its long-term capacity guidance at 110- 130mt by FY31 (12-13% CAGR). It has now guided for an interim target of 70-75mt (15-17% CAGR) capacity by FY27 and is on track to achieve 49mt capacity by FY24;

2) Capex guidance is maintained at Rs30bn/Rs35-40bn for FY23/FY24, respectively;

3) Cement prices have increased by Rs20-25/bag in Kerela, Rs10-15/bag in Tamil Nadu, Rs5-7/bag in the East and stayed flat in other southern regions, in Oct-22;

4) Average fuel consumption stood at US$215 in Q2 (vs spot price of USD195). Company expects fuel cost to decline by 10% in Q3;

5) Company remains focused on ESG and cost efficiencies and has, thus, taken Board approval for addition of another 155MW renewable power capacity. Based on this, it plans to increase renewable power share to 35% by FY25E from 24% currently;

6) Management remains confident about demand pickup in the North East and expects 14-15% volume growth over the next 3-4 years;

7) Blending ratio has improved by 80bps QoQ to 82.8%;

8) Fuel mix stood at 59% petcoke and 14% domestic coal; Clinker:Cement (in CC terms) ratio has increased to 1.71x vs 1.59x YoY;

9) Premium product share increased 100bps QoQ to 20%, whereas trade mix declined by 400bps QoQ to 64%.

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