Buy Dalmia Bharat Ltd For Target Rs. 2,405 by Choice Institutional Equities Ltd
Expansion pipeline supports sustainable earnings growth
We retain our BUY rating on DALBHARA with an unchanged target price of INR 2,405/share. We remain constructive on DALBHARA based on:
1) Ambitious capacity expansion to 110–130 MTPA (from 54.7 MTPA currently), with ~12 MTPA scheduled for commissioning by Q3FY28, strengthening its pan-India footprint
2) A supportive pricing environment, which should help offset cost inflation
3) Disciplined capital allocation, supporting healthy returns
4) JP Assets acquisition, which presents a strong synergy-led value-creation opportunity through scale, operational efficiency and market expansion. Despite cost headwind forecast of ~INR 100–120/t in Q2FY27E, we believe a favourable pricing environment should largely offset the impact. Further, continued cost-optimisation initiatives, coupled with a higher share of renewable energy, are expected to cut the impact of rising power cost and aid profitability. Accordingly, we anticipate DALBHARA to deliver FY27E EBITDA/t of ~INR 972/t, reflecting the company's resilient margin profile despite near-term cost pressure. We project DALBHARA to deliver an EBITDA CAGR of ~9.0% over FY26–29E, driven by volume growth of 4.0%/6.0%/8.0% and realisation growth of 3.5%/1.5%/1.0% over FY27E–FY29E, respectively. Our TP of INR 2,405/share is based on an EV/CE valuation framework, assigning a multiple of 1.6x for FY28E.
Elevated Operating Expenses Erode Pricing Gains
DALBHARA reported Q1FY27 consolidated revenue and EBITDA of INR 38,900 Mn (+7.0% YoY, -8.4% QoQ) and INR 8,050 Mn (-8.8% YoY, - 10.8% QoQ) vs CIE estimate of INR 37,287 Mn and INR 7,050 Mn, respectively. Total volume for Q1 stood at 7.6 Mnt (vs CIE est. 7.5 Mnt), up 8.6% YoY and down 13.6% QoQ
Realisation/t came in at INR 5,118/t (-1.5% YoY and +6.1% QoQ), which is higher than CIE’s est. of INR 4,978/t. Total cost/t came in at INR 4,059/t (+3.2% YoY and +6.9% QoQ), vs CIE est. of INR 4,037/t. As a result, EBITDA/t came in at INR 1,059/t (vs CIE est. of INR 941/t), which is a decrease of ~INR 202/t YoY.
Risks: Possible fluctuation in pet coke and coal prices, as well as supply disruption due to geopolitical events.
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SEBI Registration no.: INZ 000160131
