Accumulate Dalmia Bharat Ltd for the Target Rs. 2,372 By Prabhudas Liladhar Capital Ltd
Quick Pointers:
? Incentive approvals likely delayed due to GST rationalisation; FY26 incentives revised to Rs2.4bn (vs Rs3bn earlier) and FY27 expected at Rs2bn.
? Capex for FY26/27 is expected at Rs30bn/40bn, revised down by Rs10bn due to favourable credit terms.
Dalmia Bharat (DALBHARA) reported inline operating performance in Q2FY26 on weak pricing and tepid volume scenario. Average NSR declined 4.7% QoQ due to lower premium share and pricing pressure to maintain market share in key regions. Volumes grew just 2.7% YoY due to intense monsoon in key regions. P&F costs declined led by increase in RE power capacity to 48% in Q2 vs 41% in Q1, along with that Freight costs and other costs also declined which led EBITDA/t increase by 56% to Rs1,009 (Ple of Rs1,014). DALBHARA reiterated its confidence in achieving cost savings of Rs150–200/t by end FY27E, though mineral bearing tax bill by TN govt. would keep the RM costs up.
Capex execution is progressing well, with trial runs underway at the 3.6mt clinker line in Umrangso and 52% of civil work completed at Belgaum IU. However, intense competition from larger players continues to limit DALBHARA’s volume growth potential. With no price hikes expected over the next couple of months and rising pet coke costs, sustaining margins in the near term could be challenging, though anticipated demand recovery in H2 should provide some cushion. We remain watchful of: (1) pricing trends in the South and East, (2) increase in pet coke costs, (3) execution progress of the upcoming capacities, and (4) volume traction amid heightened competitive intensity. We cut our FY27/28E EBITDA by 3% each due to loss of market share and incremental pricing pressure in key regions. At CMP, the stock is trading at 11x/10x EV of FY26/FY27E EBITDA. Maintain Accumulate with TP of Rs2,372 valuing at 11x EV of Sep’27E EBITDA.
? Revenue grew on low base and higher YoY Pricing: Consolidated revenue grew 11% YoY to Rs34.2bn (-6% QoQ; PLe Rs35.4bn) on low base & higher pricing in South & East region YoY. Cement volumes grew just 2.7% YoY to 6.9mt (-1.4% QoQ; PLe 6.99mt). Average realisation declined 4.7% QoQ to Rs4,952/t (7.8% YoY; lower than PLe of Rs5,064/t) led by lower prices in South & East India during the quarter
? EBITDA rises on lower P&F and Freight costs: EBITDA grew 60% YoY to Rs6.96bn (-21% QoQ; lower than PLe Rs7.08bn) aided by higher YoY pricing, lower P&F and freight costs. RM costs increased 10.5% YoY to Rs732/t due to impact of Mineral Bearing Land Act by Tamil Nadu Govt w.e.f. 4th Apr’25. Other costs/t declined 3% YoY to Rs790 despite seasonally weak quarter. Freight cost/t declined 4% YoY to Rs1,055 while P&F costs/t continue to decline (1.2% YoY; flat QoQ) to Rs1,039. Petcoke/coal consumption cost remained at USD100/t in Q2FY26. Resultant, DALBHARA delivered EBIDTA/t of Rs1,009/t (+56% YoY/-20% QoQ) Vs PLe of Rs 1,014/t. PAT grew 4x YoY to Rs2.38bn (-37% QoQ; PLe 2.17bn) on lower base and aided by lower depreciation.
? On track capex and RE push to strengthen growth outlook: 1) Trial runs began at the 3.6mt clinker line in Umrangso, Assam in September, with commercial production slated for Q3FY26. All major orders placed for 6mtpa integrated unit at Belgaum, 52% civil work completed at Belgaum. Public hearing at 6mtpa Kadapa unit is completed. 2) Company commissioned 93MW of RE capacity, taking its operational RE capacity to 387MW. Share of Renewable power consumption stood at 48.1% (41.2% in Q1). Operational RE capacity is expected to reach 576MW by the end of FY26.
Q2FY26 Conference Call Highlights:
? Reiterated guidance of Rs150–200/t cost savings to be achieved over the next 2 years.
? Trial runs began at the 3.6mt clinker line in Umrangso, Assam in September, with commercial production slated for Q3FY26. This will provide an opportunity to add an additional 2.5mt split grinding unit in the Northeast market. Until the 2.4mt GU is ramped up, no new projects will be taken up in the Northeast.
? At Jaisalmer, work on land acquisition, obtaining permissions, and progressing towards environmental clearance is ongoing.
? Lead distance for Q2FY26 stood at 237km (vs 280km in Q1FY26).
? Approval for incentives is likely to get deferred due to GST issues; hence FY26 incentives are expected to be Rs2.4bn vs previous guidance of Rs3bn. For FY27, incentives are expected to be Rs2bn.
? Incentives accrued and collected during the quarter were Rs640mn and Rs500mn respectively.
? For H1FY26, total incentives accrual stood at Rs1.38bn and collection at Rs910mn. At the end of Q2FY26, total incentive outstanding was Rs8bn.
? With the government’s removal of cess on coal, the company expects a benefit of Rs200mn in H1FY26, totaling Rs400mn for FY26 and Rs500– 550mn in FY27.
? Pay structure is being revised from 100% fixed pay to a variable pay model for senior management. The three variables will be company performance, individual performance, and safety measures. 15–25% of total pay will be variable. ? 48% renewable energy (RE) share achieved, with a rising share of RE in the energy mix. Commissioned 93MW of RE capacity; targeting 576MW by FY26E.
? Cannot completely offload IEX shares currently due to SEBI’s ongoing investigation into insider trading matter.
? No clinker sales were included in the Q2FY26 volume.
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