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Dalmia Bharat Ltd. Q2FY24 consolidated volumes came in at 6.2mnt, up 6.9% YoY and down 11.4% QoQ. The consolidated revenue for Q2FY24 stands at INR31,490 Mn, up 6.0% YoY and down 13.1% QoQ. For the quarter, EBITDA/t stands at INR 950/t, up 45.4% YoY and 9.0% QoQ. The increase in profitability is mainly attributable to lower power fuel, costs and freight expenses. Adjusted PAT for the quarter stood at INR 1,239, up 148.3% YoY and down 13.9% QoQ. EPS for the quarter was INR6.3. Net Debt/ EBITDA stood at 0.59x.

Near-term capacity expansion plans: The company is planning to incur capex of INR 65,000 million in FY24. Out of this, INR 35,000 Mn will be allocated to JP, and the remaining INR 30,000 Mn will go towards organic expansion, which includes projects in the Northeast and Rohtas Cement Work. The company has already commercialized 2mnt of new grinding cement capacity in Sattur, Tamil Nadu, and increased its clinker capacity by 0.5 mnt in Ariyalur, Tamil Nadu. Dalmia Bharat is also setting up a 2.9 mnt of cement grinding capacity in the South, which should be completed by March '24 and an additional 0.9 mnt of capacity expected shortly. Furthermore, the company has plans of setting up 2.4 mnt in the Northeast by FY26 and is adding 0.5 mnt of capacity in Rohtas Cement Works in Bihar. The acquisition of JP Cement assets is in progress and expected to be completed by the end of the financial year. The management remains committed to achieving its milestone of 75MnTPA cement capacity by FY27 ,working towards its long-term goal to reach 110-130 MnTPA cement capacity by FY31, implying a 14-17% CAGR in terms of capacity addition. 

Blended Realization/t during the quarter came in at INR5,079/t: Realization for the quarter came at INR5,079/t, down 0.8% YoY and 1.9% QOQ. However, there was a notable price increase of INR 40-50 and 30 per bag in the East and South region respectively. The company achieved a higher proportion of trade sales, reaching 68% in the quarter. This increase was mainly due to price hikes in the southern region along with rise in sales of low-carbon cement

Total Cost/t dipped to INR4,129/t: In the quarter, the total cost per ton decreased by 7.6% YoY and 4.1% QoQ. This reduction was mainly attributable to lower power and fuel costs, down 21.7% YoY and 22.6% QoQ. However, fuel prices which had earlier dropped $105, have now risen to the range of $130 to $135 per unit. Freight expenses for the quarter amounted to INR 6,310 Mn, increasing 5.9% YoY but significantly decreasing by 22.0% QoQ. This reduction was due to shortening of lead distance from 308 km to 277 km. On the downside, there was an increase in raw material costs due to a nearly 10% and 5% rise in slag rates and fly ash rates respectively. 

View and Valuation: The management believes that India is on the cusp of a strong cement upcycle with demand likely to grow at 8%-9%. The Company is majorly focusing on cost optimization and is incurring significant capex which will in turn fuel growth. As per our FY26E estimates, we are expecting Revenue/EBITDA/PAT to grow at a CAGR of 6.0%/22.0%/15.0% respectively over FY23-FY26E. Our target EV/EBITDA multiple remains unchanged at 12x ,hence we have ascribed a target price of INR 2,515, Upgrading our rating to ADD from Neutral.

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