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Muted Volume performance: Dalmia Bharat reported a revenue of Rs.3,621 crores for Q1FY25, marking a 16% decline on a QoQ basis, while remaining relatively flat on a YoY basis. The weak demand across markets, attributed to the recent elections, led to a 15.9% reduction in volumes QoQ. Due to these realizations remained subdued, showing a 5.5% decline YoY and remaining flat QoQ at around Rs.4,894 per ton. Looking ahead, the management anticipates an improvement in sector demand, supported by capacity expansion and increased utilization levels.

Operating performance a miss: The company's gross profit decreased by 1.4% YoY but grew by 9.4% QoQ, driven by a 38% QoQ reduction in material costs, which improved margins by 600 basis points sequentially. The reduction in fuel costs, freight, forwarding costs, and other expenses led to a 9.7% YoY and 2.3% QoQ improvement in EBITDA. The EBITDA margin also increased to 18.5%, up 164 basis points YoY and 329 basis points QoQ. Consequently, EBITDA per ton rose by 3.07% YoY and 21.6% QoQ to Rs.904 per ton. However, the company's PAT for the quarter declined by 54.7% QoQ due to provisions made for JP Associates' assets, as JP Associates has been admitted to the Corporate Insolvency process.

Key highlights: 1) The current cement capacity is 46.6 MT (up from 45.6 MT as of June 30), and clinker capacity stands at 22.6 MT, with a 2 MT increase in capacity during the quarter.2) The JP Associates deal, which was progressing well, encountered a setback as the National Company Law Tribunal admitted JAL into the Corporate Insolvency Resolution Process during the June 2024 quarter. 3) This recent development with JP Associates has introduced uncertainty regarding the company's aggressive capacity targets, although management remains committed to its previously established goals. 4.) For the current year, the company expects to incur Rs.3,500 to Rs.4,000 crores on capex, with Rs.660 crores already spent in Q1FY25. Most of the capex will be used to expand current capacity and implement cost optimization measures, such as adding renewable capacity. 5) Cement prices have remained soft for the past 7-8 months, with a 2-3% QoQ decline. Election-related muted demand prevented any sustained price hikes by industry players. 6) For FY25, management expects to grow volumes by 12%, thereby gaining market share as well. 7) Cost optimization has not yet been fully achieved, so the company will continue to focus on this moving forward. 8) Management plans to improve utilization and capacity, invest in brands, and expand distribution to gain market share in areas where their presence is currently weak. 9) Current capacity utilization stands at 65%.

Outlook & Valuation: Dalmia Bharat reported mixed set of numbers with improved margins but subdued performance of volume growth and price realizations front. Going ahead, management remains positive on the growth prospects as there are strong opportunities in the cement sector driven by overall infrastructure development, strong demand from housing and real estate sector as well as private capex investment. The company would focus on driving volume led growth with improvement in realization, gaining market share. JP associates deal hitting a roadblock has created uncertainty regarding future growth hence we have reduced revenue and EBITDA growth expectations for FY25/26. On the financial front, we anticipate revenue and EBITDA to grow at a CAGR of 10.44% and 15.3%, respectively, over FY24-26E. Consequently, we have revised our rating to "Accumulate" but have lowered the target price to Rs.1,960.

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