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Unclear expansion plan and Jaypee Assets issue leads to valuation change

Result Synopsis

Dalmia Bharat (DALBHARA) reported weak set of numbers in 1QFY25, which could have been better. Revenue remained flattish YoY (-15.9% QoQ) mainly due to lower volume of 7.4mt (+5.7% YoY/ -15.9% QoQ) and lower realization of Rs4893/tn (-5.5% YoY/ flattish QoQ). Avg. capacity utilization stood low at 64% in 1QFY25 vs. 66% in FY24. EBITDA in absolute number improved by 9.7% YoY (+2.3% QoQ), while EBITDA margin stood at 18.5% in 1QFY25 vs. 15.2%/ 16.8% in 4QFY24/ 1QFY24. EBITDA/tn on blended basis stood at Rs904 (+3.7% YoY/ +21.6% QoQ). On QoQ basis, there is jump in EBITDA/tn mainly led by sharp decline in RM Cost/tn by 26.4% QoQ and marginal decline in Freight cost/ Other expenses per tonne by 3.2%/ 4.6% QoQ. While P&F cost/tn increased by 14% QoQ. Overall Opex/tn down by 7.4% YoY and 3.9% QoQ. Adj. PAT grew by 8.5% YoY but declined by 55.2% QoQ, and the QoQ decline is mainly due to lower other income coupled with Rs1.13bn exceptional charges on account of Jaypee Asset’s claim with IRP.

At present, few issues discourage the valuation multiples in near-term i.e., 1). Jaypee Assets tolling arrangements, 2). Unclear road map for capacity expansion plan to become 110-130mtpa by FY30 and it may take 12months time for final blueprint, 3). Low-capacity utilization (64% vs. Industry ~70%) and 4). Weak pricing environment due to competitive intensity among larger players. We don’t see higher volume addition in FY25E but can expect additional volume in FY26E from Lanka & Bihar units which is expected to be commissioned by end of FY25E. We cut our Revenue/ EBITDA/ PAT estimations by -10%/ -19%/ -34% for FY26E mainly due to 1). Pricing pressure, 2). Low-capacity utilization and 3). Unclear expansion plans. We are valuing the stock at 13x EV/EBITDA (Earlier 15x EV/EBITDA) with a TP of Rs2,103 (Earlier 2,933) which leads to change our recommendation to ADD (Earlier BUY).

Result Highlights

* Revenue Rs36.2bn (flattish YoY/ - 16% QoQ), is ~13% below our est. of Rs42bn. EBITDA Rs6.7bn (+10% YoY/ +2% QoQ), is 7% above our est. of Rs6.3bn. Adj. PAT Rs1.4bn (+8% YoY/ - 55% QoQ), is ~5.3% below our est. of Rs1.5bn.

* Volumes 7.4mt (+6% YoY/ -16% QoQ), is ~15% below our est. of 8.69mt. While Realization Rs4893/tn (-5% YoY/ flattish QoQ), is ~2% above our est. Rs4796.

* EBITDA/tn Rs904 (+4% YoY/ +22% QoQ), is ~25% above our est. of Rs738 - Mainly due to lower volume and flattish realization.

* There is no significant improvement in the P&F cost/ Freight cost on per tonne basis. Though there were no busy season railway surcharges and spike in diesel price, freight cost/tn has merely decline by ~3%

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