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Ambitious growth plans, execution in focus

4 th largest player in the industry, focusing on sustainable growth Dalmia Bharat (DALBHARA) has underperformed the BSE Sensex and most cement stocks under our coverage in the last six months (Exhibit 3) mainly due to a delay in the acquisition of JPA’s cement assets (announced in Dec’22) and a slowdown in cement demand in the eastern region, in our view. However, we are optimistic about the company’s long-term outlook, given: a) its plan to increase capacity to 110-130mtpa at a 14-17% CAGR by 2031; b) focus on sustainable growth through various initiatives such as higher blended cement, green energy mix; and c) strong balance sheet with the target to maintain a net debt-to-EBITDA ratio of less than 2x. We reiterate our BUY rating on the stock with a TP of INR2,800 (based on Sep’25E EV/EBITDA)

* Aims to become a pan-India cement player:

DALBHARA has been consistent in capacity expansion over the past decade, with a ~15% CAGR in grinding capacity since FY14. In the long run, the company expects a 14- 17% CAGR in capacity and aims to increase its cement grinding capacity to 75mtpa/110-130mtpa by FY27/FY31 through organic and inorganic routes. Currently, the company has a major presence in the east and south regions of India. It intends to establish its presence in the west, central and north regions. DALBHARA proposed to acquire cement assets of Jaiprakash Associates (JPA) located in central India, with a significant capacity share (~10%) in the region. The company has limestone reserves in North and Central India, which reduces the regional risk.

* Focus on cost efficiency, innovation and sustainability:

The company focuses on cost reductions, innovation, and sustainability. Key initiatives are: 1) increase in green power share to 29% vs. 17% in FY22, 2) increase in TSR to 17% vs. 13% in FY22, 3) reduction in clinker factor to 58.5% and increase in blended cement to 88% in product mix, and 4) freight cost savings through a digital bidding platform for transporters and the use of heavy-duty electric trucks for transportation of raw materials. It is installing a chlorine bypass duct to remove chlorine from the system and achieve 100% replacement of fossil fuels. It also secured two coal blocks in the east and central regions, which will provide fuel security and cost optimization.

* Strong operating cash flows (OCF) should support growth plans:

The company’s clinker/cement capacity stood at 22.2mtpa/44.6mtpa. It plans to expand clinker/cement capacity to 27.1mtpa/49.5mtpa by FY26 through organic routes. Moreover, it has announced the acquisition of clinker/ cement/CPP capacity of 6.7mtpa/9.4mtpa/280MW at an enterprise value of INR58.4b (USD75/t) from JPA. We estimate the company to generate cumulative OCF of INR112b over FY24-26, which will support its future growth plans. Net debt is expected to increase with the conclusion of the JPA deal and expects net debt to increase to around INR30-40b vs. net debt of INR15 as of Sep’23. The management targets to keep the net debtto-EBITDA ratio below 2x unless big inorganic opportunities arise

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SEBI Registration number is INH000000412