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In-line volume performance: Dalmia Bharat posted steady top-line growth with revenue higher by 7.3% YoY and 14.3% QoQ to Rs 3,600cr. Sales volumes came in-line with expectation at 6.8MnT in Q3FY24, an increase of 7.9% YoY and 9.7% QoQ while realization showed mixed trend as it declined by 0.6% YoY but increased by 4.2% QoQ to Rs 5,294/ton. Going ahead, management expects sector demand to improve along with expansion in capacity and increase in utilization levels.

Robust improvement continues at operating levels: Dalmia Bharat reported healthy operating performance for Q3FY24, wherein EBITDA grew by 20% YoY and 31.6% QoQ to Rs 775cr. EBITDA margins improved by 227bps YoY and 282bps QoQ to 21.5% and EBITDA/ton expanded by 11.1% YoY and 20% QoQ to Rs 1,140/ton largely because of decline in fuel cost by 24.7% YoY and fuel cost/ton decreased by 30.2% YoY and 5.2% QoQ to Rs 1,068/ton. Further, total cost/ton and freight cost/ton saw a decline of 3.4% and 1.9% YoY, respectively and that too aided better EBITDA performance as compared last year. Also, PAT grew strong by 23.7% YoY and 114.5% QoQ to Rs 266cr with PAT margin at 7.4%, an expansion of 98bps YoY and 345bps QoQ.

Expansion plan intact: The company plans to be a pan India player in the next few years and with massive growth opportunities in the cement sector, they have plans to expand its capacity in South, East, North East and West regions. In the near term i.e. by FY25 they would increase its capacity to 49.5MnT and further plan it to expand to 75MnT by FY27 (more details to be announced in the next 1-2 quarters) and a goal to reach 110-130MnT by 2031

Concall highlights: 1) Management plan is to achieve mid-teens volume growth for the next 2-3 years. 2) Cost saving, better efficiency and improvement in realization would lead to expansion in margins of ~3%. 3) Fuel cost has largely stabilized and has marginal scope to dip further. 4) Plan is to be a pan-India player in the next few years. 5) Dalmia completed debottlenecking at Belgaum, Karnataka with capacity of 0.9 MnT and its total cement capacity stands at 44.6 MnT for Q3FY24. 6) One of Lowest Carbon footprint in global cement world at 459 kgCO2/Ton of Cement. 7) Green power is about 25% for the quarter. 8) Surcharge & higher lead distance led to increase in freight cost during the quarter. 9) Net Debt/EBITDA reduced to 0.16x as compared to 0.59x in Q2FY24. 10) Lead distance declined by ~20kms. 11) Cement prices remain volatile and the company expects it to grow by ~1.5-2% CAGR over the long term. 12) Management plan is to grow the company on the four pillars of scalability, sustainability, predictability and consistency.

Outlook & Valuation: Dalmia Bharat posted a decent set of numbers for Q3FY24 and going ahead, positive industry tailwinds driven by continuous government spending, strong demand from housing and real estate sector bodes well. Besides, the company’s effort of expanding capacity along with adding JP associates assets, improving utilization as well as improving cost efficiency will aid healthy volume and margin expansion. On the financial front, we expect its revenue/EBITDA to grow by 13.6%/24.2% CAGR and EBITDA/ton to improve by 10.6% CAGR over FY23-26E and have upgraded our rating to Buy, with a target price of Rs 2,589, valuing the company at EV/EBITDA of 11x FY26E.

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