Add Dalmia Bharat Ltd For Target Rs. 2,300 By Emkay Global Financial Services Ltd
Roadmap on capex and cost reduction plans to drive momentum
We assume coverage of Dalmia Bharat with ADD and target price of Rs2,300, valuing the stock at Sep-27E EV/EBITDA of 11x. Dalmia has delivered stellar, ~25%, returns in the past three months and is trading at ~12x 1-year forward EV/EBITDA, which is slightly above the long term-mean. We believe the street will now look at 1) Dalmia’s organic capacity expansion plans and subsequent ramp-ups, 2) the outcome of its bid on Jaiprakash Associates’ (JAL) assets, 3) implementation of cost-rationalization steps (Rs150-200/ton by FY27), and 4) pricing robustness in the South and East India which could provide further momentum to the stock, in our opinion. We await clarity on Dalmia’s roadmap toward 75mtpa (incl JAL bid) and its impact on balance sheet/return ratios before ascribing a higher valuation multiple. We estimate Dalmia’s FY26E, FY27E, and FY28E EBITDA/t at ~Rs1,050, Rs1,135, and ~Rs1,240, respectively.
Aims to reach 75mtpa by FY28; expect fresh capex announcement in FY26
Dalmia aims to reach 75mtpa by FY28, from 49.5mtpa now, and has announced the roadmap to achieve 55.5mtpa by FY27. Given the gestation period required for cement brownfield (2-3 years) and greenfield (3-4 years) projects, we expect the company to announce fresh expansion projects in FY26, in a bid to reach its intended target. Hence, we have factored in 8mtpa organic capacity, scheduled to be commissioned in FY28E, taking the total capacity to 63.5mtpa. We factor in ~8% volume CAGR over FY25-28E.
Balance sheet to remain healthy despite capacity expansion
Factoring in the announced and expected expansion projects, we expect Dalmia’s capex cash outflows at Rs90bn over FY26E-28E. We believe the company would fund its capex requirements primarily through internal accruals (operating cash flows of ~Rs88.5bn over FY26E-28E). We also expect Dalmia to partly monetize its stake in Indian Energy exchange (IEX) to fund the balance capex requirements. Overall, we see net debt to EBIDTA rise to 0.63x (from 0.3x in FY25) in FY26E, before falling to 0.53x and 0.3x in FY27E and FY28E, respectively.
Bid on Jaiprakash Associates’ assets, a key monitorable
Per media articles (link), Dalmia is among the five bidders to have submitted its resolution plans to acquire JAL’s assets, which include real estate, power, hospitality, etc., besides cement. Per our recent interaction with the company, it will divest the non-core assets and retain the cement assets only, if it wins the bid. In Dec-22, Dalmia (link) entered a binding agreement to acquire JAL’s 6.7/9.4mtpa clinker/cement assets, respectively, for ~Rs57bn. Given that the assets are to be acquired through competitive bidding, we expect the acquisition cost to be higher than ~Rs57bn. Our capex estimates do not account for JAL’s capacity; this will remain a key monitorable in the short term.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
