Buy Dalmia Bharat For Target Rs.2,100 by Motilal Oswal Financial Services Ltd
Weak performance due to subdued volume growth
Estimates industry volume growth at ~6-7% YoY in 4QFY25
* Dalmia Bharat (DALBHARA)’s 3QFY25 EBITDA declined 34% YoY to INR5.1b (11% miss due to lower-than-estimated volume and higher variable cost/t). EBITDA/t was down 33% YoY to INR767 (est. INR800). OPM contracted 5.6pp YoY to ~16%. PAT declined 78% YoY to INR590m (60% below our estimates).
* Management indicated that cement demand recovery was below estimates due to slippages in government capex, unseasonal rains, and state elections. The company believes that the government’s focus on increasing capex will be crucial for strong growth moving forward. Cement prices rose in Dec’24 and have sustained so far. The company expects additional price hikes in 4QFY25. However, heightened competitive intensity may cap the potential for higher growth. The company’s focus remains on cost reduction (targeting cost savings of INR150-200/t through internal measures by FY27E).
* We cut our EBITDA estimates ~7%/4%/2% for FY25/FY26/FY27 due to a lower volume growth assumption and competitive pricing, which is expected to drive lower EBITDA/t vs. historical average. We value DALBHARA at 12x Dec’26E EV/EBITDA to arrive at our revised TP of INR2,100 (earlier INR2,250). Reiterate BUY.
EBITDA/t declines 33% YoY to INR767 (vs. est. INR800)
* Consolidated revenue/EBITDA/PAT stood at INR31.8b/INR5.1b/INR590m (- 12%/-34%/-78% YoY and -6%/-11%/-60% vs. our estimates) in 3QFY25. Sales volumes declined 2% YoY to 6.7mt (7% below our estimate). However, sales volume ex-JPA was up ~4% YoY. Realization stood at INR4,773/t (down 10% YoY; up 4% QoQ). However, cement realization (adj. for incentives) grew ~2% QoQ, in line with the estimate.
* Variable costs/t declined ~11% YoY (5% above estimate). Other expenses/ freight cost per ton increased 4%/3% YoY (in line). Opex/t was down 4% YoY (+2% vs. estimate). OPM contracted 5.5pp YoY to ~16%, and EBITDA/t declined 33% YoY to INR767. Depreciation/interest costs dipped 2%/6% YoY. Other income decreased 38% YoY.
* In 9MFY25, consolidated revenue/EBITDA/PAT declined 5%/19%/34% YoY. Volume increased 4% YoY to 20.8mt, while realization declined ~8% YoY. OPM contracted 2.8pp to ~16% and EBITDA/t declined 22% YoY to INR777. In 4QFY25, we estimate revenue/EBITDA/PAT to increase 2%/36%/25% YoY, albeit on a low base. Volume is likely to grow ~4% YoY, while realization is expected to decline ~1%. EBITDA/t is estimated to increase 31% YoY to INR970 (led by lower opex/t, estimated to decline ~7% YoY).
Highlights from the management commentary
* Cement demand growth was modest at low single digits in 3QFY25. The company expects demand to grow ~6-7% YoY in 4Q, translating into ~3-4% YoY growth for FY25E.
* Fuel consumption cost stood at INR1.31/Kcal vs. INR1.36/Kcal in 2Q. The benefits of lower fuel prices were offset by a reduction in the RE share (at ~33% vs. ~39% in 2Q).
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