Buy Dalmia Bharat Ltd For Target Rs.2,287 by Prabhudas Liladhar Capital Ltd
Cost-led beat; volume recovery remains the key
Quick Pointers
* Cost inflation of ~INR125–150/t is expected in Q1FY27, led by packing (~INR80–90/t) and fuel costs.
* Cost reduction of ~INR100/t achieved in FY26; ~INR50–100/t savings targeted in FY27.
Dalmia Bharat (DALBHARA) reported better than expected operating performance in Q4FY26, supported by improved realisations and well-controlled costs, despite a modest volume miss due to a one-off kiln breakdown. Average NSR improved 1.5% QoQ driven by price hikes in key regions. Operating performance remained strong, with lower freight costs led by higher direct dispatches and stable power & fuel costs aided by higher renewable energy share, resulting in EBITDA/t of INR1,025 (PLe INR938). While input cost pressures persist due to elevated pet coke prices and logistics inflation, DALBHARA’s continued focus on cost optimisation and improving pricing environment should support margin resilience going forward. As per mgmt. DALBHARA has achieved ~INR100/t cost reduction in FY26, with management targeting further savings of ~INR50-100/t in FY27 through ongoing efficiency initiatives.
Management indicated cost inflation of ~INR125-150/t going into Q1FY27, making sustainability of recent price hikes critical for margin protection. Further, subdued volume growth over the past two years suggests loss of market share, highlighting the need for stronger volume traction going forward. While upcoming capacity additions, addition of premium products and stable domestic demand should support growth, we expect DALBHARA to remain play on regional prices especially East/South. DALBHARA’s performance will hinge on its ability to drive profitable volume growth while continue executing cost optimisation initiatives. We tweak our FY27/28E EBITDA by -7.9%/+0.5% to incorporate lower volumes, higher costs and higher prices and expect 11% EBITDA CAGR over FY26-28E in inflationary environment. At CMP, the stock is trading at 11.2x/9.3x EV of FY27/FY28E EBITDA. Maintain ‘BUY’ with revised TP of Rs2,287 (earlier Rs2,250) valuing at same 11x EV of Mar’28E EBITDA.
Other important points:
* Cement demand seen at ~7–8% CAGR; DALBHARA targets to outpace.
* Every 5% rise in diesel increases freight cost by ~INR15/t.
* FY27 capex is guided at ~INR32-34bn (ex-new projects at planning stage)
* FY27 incentive booked is expected at ~INR2bn.
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