Add Dalmia Bharat Ltd for the Target Rs. 2,000 by Emkay Global Financial Services Ltd
Dalmia Cement (Bharat) Limited (DCBL; 100% subsidiary of Dalmia Bharat {Dalmia}) has executed a business transfer agreement (slump sale basis) to acquire 3.3/5.2mtpa clinker/cement capacity from Jaiprakash Associates (acquired by Adani group under IBC). The acquisition cost, including refurbishment and efficiency capex, is Rs34bn, implying a total capital cost of ~USD76/t (adjusting for Sadwa, UP blending unit at USD9/t). We view this cost 15-20% below replacement cost of a greenfield asset and ~9% (constant currency basis) below the Dec-22 acquisition plan (JAL-Dalmia binding agreement). Assuming Dalmia ramps up profitability of the acquired assets to central India’s average levels (~Rs800/t) by FY28, the acquisition is expected to generate RoCE of 8-9% (in line with Dalmia’s existing assets). The >100mt limestone reserves are expected to support operations for >20 years at existing capacity while Dalmia’s captive limestone reserves at Satna, MP, (15-20km) provide additional buffer for future brownfield expansions. We factor in capex and expected EBITDA separately and continue to value Dalmia at an unchanged TP of Rs2,000, based on 11x EV/EB FY28E. Given the mothballed nature of the plants, required refurbishment capex, and volatile energy costs, we bake in unit EBITDA of Rs300 and Rs750 for the acquired assets in FY27E and FY28E, respectively. Maintain ADD.
Dalmia closer to 75mtpa target; top 5 share in central India at ~75% by FY28E
With the acquisition of the assets, Dalmia’s overall capacity is set to reach ~66mtpa by FY28E, which is near to its stated guidance of 75mtpa by FY28E. The management highlighted debottlenecking optionality of 0.5-0.7/1.5-2mtpa in clinker/cement capacities. All assets are located in Central India, providing Dalmia with incremental regional exposure besides its existing presence in East, South, and West India. The transfer of these assets is unlikely to materially alter near-term supply dynamics; however, top 5 share is expected to improve to 75% by FY28E (vs 72% currently), which bodes well for the pricing scenario. Given Dalmia’s position as the fourth-largest capacity player in India, we expect the all-India top 5 share to increase to ~63% in FY28E from ~60% currently.
Debt levels remain under control despite heavy capex outflow in next 2 years
The central India asset acquisition, coupled with ongoing capex at Belgaum, Kadapa, and Pune, implies total capital expenditure of ~Rs95-100bn over FY27-28E. We expect the company to generate operating cash flows of ~Rs49bn (including cash generated from new assets) over the same period, implying debt requirements of ~Rs45-50bn. Accordingly, we expect net debt to rise to >Rs60bn by FY28E from ~Rs14bn in FY26. With FY28E EBITDA at ~Rs39bn, we expect net debt/EBITDA to rise to ~1.5x (disciplined for a growing company) in FY28E from ~0.5x in FY26E.
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