Accumulate Dalmia Bharat Ltd For Target Rs. 2,273 - Prabhudas Liladhar Capital Ltd
Higher prices to uplift near term performance
Quick Pointers:
* Cement prices in East and South are higher by ~Rs12 and ~Rs35/bag respectively from Q4 average despite some fall in June due to early monsoon.
* Volume is expected to take a hit in Q1FY26 due to sluggish demand especially in the East amid monsoon.
Cement demand remains muted especially in the key Eastern region where demand is struggling over last 5 quarters. Despite regime change in Odisha and upcoming elections in West Bengal, demand remained muted in last few months. East region prices improved in Apr/May along with other regions by ~Rs20/bag and got cut by Rs5 in June due to early monsoon however current prices are still Rs10-15 higher than Q4FY25 average. Southern region demand is better than East but now affected by early monsoon and flood like situation in few regions. Prices improved by Rs50/bag in Apr/May and rolled back by Rs5-10 due to monsoon led weakness in demand. We expect near-term performance to remain strong led by higher pricing and flattish cost structure which would translate into ~Rs200-250 QoQ increase in EBITDA/t from Rs926 levels of Q4FY25
DALBHARA has already announced 6mtpa expansion projects (Rs35bn) at Belgaum and Pune which are expected to be completed by end FY27E to reach 55.5mtpa. Company is envisaging few similar size capacity addition projects via mix of Greenfield or Brownfield route to achieve its 2028 target of 75mtpa however, nothing has yet been finalized. We expect capex announcement inline with its long-term target of capacity addition. DALBHARA reiterated its confidence in achieving cost savings of Rs150–200/t by FY27E via improvement in renewable energy mix from c.36% to 45–50% by end-FY26, and reduction in logistics costs. We expect DALBHARA to be key beneficiary of higher prices in South/East regions in 1HFY26. Incorporating recent price increases and AR25, we upgrade our EBITDA estimates by 4.4%/6% for FY26/27E. We expect DALBHARA to deliver Revenue/EBITDA/PAT CAGR of 14%/30%/58% over FY25-27E on low base of FY25. At CMP, the stock is trading at 11.9x/10.2x EV on FY26/27E EBITDA. Maintain ‘Accumulate’ rating with revised TP of Rs2,273 (Rs2,117 earlier) valuing the company at 11x EV/Mar’27E EBITDA.
Sustenance in pricing to aid H1 performance: Cement prices across regions improved over the last few months with improving demand and uptick in pet coke cost. Although demand recovery was muted in May/June, sharp fall in pet coke prices and sustenance in cement prices is expected to aid cement companies’ performance in H1FY26. With DALBHARA having significant capacities in both the South (17mtpa) and East (21.6mtpa), the company is well-positioned to benefit from these price increases. The sustenance of these hikes through the monsoon season and increasing supplies in H2FY26 will be key to observe.
Region wise demand: The cement market in India is regionally diverse, with significant variation in installed capacities and demand. The Southern region has the highest capacity at ~210mtpa, with current demand is at around 120mtpa. The Central region has a capacity of ~80mtpa, against a demand of ~70mtpa. In the East, installed capacity stands at ~140mtpa, while demand is ~90mtpa. Eastern region demand has slowed down post double-digit growth for two years since FY22. The North-East market is smaller at ~15mtpa but stable and growing, having capacity of ~20mtpa. Currently, demand remains muted in key regions for DALBHARA despite a strong uptick in government spending in the last few months and we expect demand to improve post monsoon.
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