Buy Dalmia Bharat Ltd For Target Rs.2,173 by Prabhudas Liladhar Capital Ltd
Near-term headwinds, but set for good volume growth
We recently interacted with the management team of Dalmia Bharat (DALBHARA) to understand its growth strategy and the current demand and pricing scenario. With its entry into central markets and ongoing capacity additions in South/West, we believe DALBHARA is well positioned for strong 11% volume CAGR over FY26-29E. Capacity is expected to reach ~70mtpa by end-FY28, with 5.2mtpa JAL assets, 12mtpa under commissioning in South/West and one expected GU in East. The long-term 110mtpa target remains directional and is expected to be calibrated as per industry demand and leverage. Demand from the Southern region remains good, which may attract further capital, while the Eastern region is expected to witness increased activities over the long term.
In the near term, although cost inflation and higher expenses in the Central region are expected to impact cons EBITDA, planned cost optimization through higher RE, increased direct dispatches, logistics initiatives, WHRS and EV adoption would provide some support. We believe with faster ramp-up of JAL assets over the next few quarters, DALBHARA can deliver strong 11% CAGR in volume over FY26-29. We introduce FY29 estimates and cut FY27/28 EBITDA by 2.6%/1.1% on cost inflation and weak Central assets’ contribution, which is expected to reach the company level by end-FY28. We expect 14% EBITDA CAGR over FY26-29E. At CMP, the stock is trading at 10.4x/9.4x EV of FY28/29E EBITDA. Maintain ‘BUY’ with revised TP of INR2,173 (earlier INR2,079) valuing at same 11x EV of Sep’28E EBITDA.
Demand & pricing: We expect Q2FY27 demand growth to soften to 4-5% YTD, with monsoon impacting the Eastern and Northeastern regions. The Northeastern region is expected to witness double-digit volume decline in Jul’26 due to floods in Assam, although demand would improve faster in the next 2 months. Demand from the Southern region remains healthy at 6-7%. Maharashtra demand is also decent as per our channel checks. Pricing has moderated a bit, particularly in non-trade, while trade remains stable. Premiumization continues to support realizations, with DSP priced INR20-30/bag above the base product and ‘Weather 365’ ~INR20/bag above DSP.
Costs:
Q2FY27 operating costs are expected to increase by INR150-200/t, including INR70-80/t impact from higher fuel costs and seasonal negative operating leverage. Packing costs remain elevated at INR12-13/bag. If pet coke prices remain elevated, fuel costs are likely to remain elevated in Q3FY27 as well, with limited scope for moderation from Q2 to Q3, while the company continues to pursue internal measures to mitigate cost pressures. Overall, cost pressures are expected to weigh on profitability in the near term, with EBITDA/t potentially declining by ~INR200 due to the combined impact of price moderation, cost inflation and weak contribution from Central assets in the initial few quarters.
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