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Weak performance; demand growth and price key monitorable Industry volume growth to be ~6% in FY25E (vs. previous est. of ~8%)

* Dalmia Bharat (DALBHARA)’s 2QFY25 performance was weak as expected as its EBITDA declined 26% YoY to INR4.3b (5% miss) and EBITDA/t was down 32% YoY to INR650 (est. INR700). OPM contracted 4.7pp YoY to 14%. PAT declined 54% YoY to INR550m (est. INR571m). Higher volume growth (+8% YoY; +3% v/s estimates) and better cost controls were key positives; though; realization decline of 6% QoQ was weaker than our estimate of ~2% decline.

* Management believes that muted cement demand in 1HFY25 led to lower capacity utilization and weak pricing. Demand is expected to improve in 2H, led by a pick-up in constriction activities, private capex, and government-led infrastructure projects. It expects demand to grow at 8% YoY in 2HFY25 and 6% YoY in FY25 (previous estimate of ~8%). Better demand should lead to price improvements; though competitive intensity needs to be monitored.

* We cut our EBITDA estimates by ~5% for FY25/FY26 (each) and ~4% for FY27 due to continued pricing pressure and slower-than-expected recovery in demand. We value DALBHARA at 12x Sep’26E EV/EBITDA to arrive at our TP of INR2,250 (earlier INR2,390). Reiterate BUY. Volume increases 8% YoY; realization/t dips 9%

* Consolidated revenue/EBITDA/adj. PAT stood at INR30.9b/INR4.3b/ INR550m (down 2%/26%/54% YoY and 1%/5%/4% vs. our est.) in 2QFY25. Sales volume grew 8% YoY to 6.7mt Realization was down 9% YoY/6% QoQ.

* Variable costs declined 13% YoY (8% lower than our estimate). However; Other expense/freight cost per ton increased 7%/8% YoY (up 6%/flat vs. our estimate). Employee costs declined 3%/4% YoY/QoQ. Opex/t was down 4% YoY (3% lower than our estimate).

* In 1HFY25, consol. revenue/EBITDA declined 1%/9% YoY, while adj. PAT grew 16% (led by lower depreciation and ETR). Our estimates imply a revenue/EBITDA/PAT growth of ~2%/14%/13% YoY for 2HFY25, which would be led by volume growth of ~8% and higher cement prices. We estimate EBITDA/t to be at INR965 in 2HFY25 vs. INR920/INR780 in 2HFY24/1HFY25. OCF in 1HFY25 declined 69% YoY to INR2.1b due to an increase in working capital. Capex stood at INR13.9b vs. INR16.1b in 1HFY24. Net debt increased to INR6.4b vs. INR4.6b as of Jun’24. Net debt to EBITDA stood at 0.25x vs. 0.17x as of Jun’24.

Highlights from the management commentary

* It reiterated volume growth guidance of 1.5x than the industry growth. The ongoing expansion in Northeast and Bihar is likely to be completed in 2H.

* Fuel consumption cost stood at INR1.36/Kcal vs. INR1.38/Kcal in 1QFY25. The company expects fuel cost to decline marginally in the coming quarter.

* The company is working on cost savings of INR150-200/t over the next three years (INR50/t in FY25/26 each and INR100/t in FY27) through increasing RE share, captive coal mines, logistics optimization, etc.

Valuation and View

* DALBHARA reported weak operating performance in 2QFY25 due to weak realization amid higher price correction in the Southern and Eastern regions and an increase in the non-trade mix in sales volume. We estimate the company’s revenue/EBITDA/PAT CAGR at 6%/13%/27% over FY25-27. We estimate a volume CAGR of ~8% over FY25-27 and EBITDA/t of INR990/1,060 in FY26/FY27 vs. INR880 in FY25E.

* The stock has corrected ~25% since Dec’23, factoring in delayed capacity addition plans and weak operating performance due to sharp price corrections in its core markets. The company is among the least cost producer in the industry, backed by a higher blending ratio, green power share, and lower freight cost. The stock is currently trading at 10x/9x FY26E/FY27E EV/EBITDA. We value the stock at 12x Sep’26E EV/EBITDA to arrive at our revised TP of INR2,250 (earlier INR2,390). Reiterate BUY.

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