Buy Dalmia Bharat Ltd for the Target Rs.2,570 by Motilal Oswal Financial Services Ltd
Strong volume growth; adjusted EBITDA below estimates
Volume growth momentum continues; pricing volatility in the near-term
* Dalmia Bharat (DALBHARA)’s 3QFY26 earnings were below our estimates. EBITDA (adjusted for prior years' incentive of INR370m) grew ~11% YoY to INR5.7b (~8% miss). Adjusted EBITDA/t came at INR774 (up ~1% YoY; ~9% below our estimates). OPM inched up 20bp YoY to ~16% (1.4pp below our est.). PAT (adjusted for labor code impact) grew ~100% YoY to INR1.2b (~31% below our est., due to lower-than-estimated EBITDA and other income).
* Management indicated that industry volumes grew ~7-8% YoY in 3QFY26, and the momentum is sustaining in 4Q. Pricing was healthy at the start of FY26 but softened in 3Q across its key markets, with declines exceeding the GST-rate cut, also reflecting regional volatility. While near-term pricing is difficult to predict, it remains cautiously optimistic on medium-term price increases, aided by consolidation, rising entry barriers, and steady capacity utilization. It reiterated the cost reduction target of INR150–200/t, with INR45–50/t being achieved in the past six quarters. This will further reduce costs in the coming quarters.
* We cut our EBITDA estimates by ~3% for FY26-FY28 (each) due to lower-thanestimated profitability in 3Q. Our EPS estimates reduced by ~5-6% for FY26-28 (each). We value the stock at 13x FY28E EV/EBITDA to arrive at our TP of INR2,570. Reiterate BUY.
Volume rises ~10% YoY; realization/t flat YoY (down ~4% QoQ)
* DALBHARA’s consol. revenue/EBITDA/PAT (adj.) stood at INR34.7b/INR5.7b/ INR1.2b (+9%/+11%/+100% YoY and in line/-8%/-31% vs. our estimates) in 3QFY26. Sales volume increased ~10% YoY to 7.3mt (in line). Realization was flat YoY (declined 4% QoQ) to INR4,752/t (~1% below estimates).
* Opex/t declined ~1% YoY (+1% vs. our estimates). Employee costs/freight costs/other expenses per tonne declined 8%/6%/1% YoY, while variable cost/t grew ~3%. OPM expanded 20bp YoY to ~16%, and EBITDA/t increased ~1% YoY to INR774. Depreciation declined ~7% YoY, whereas interest cost increased ~17% YoY. Other income surged ~68% YoY.
* In 9MFY26, revenue/EBITDA/PAT stood at INR105.2b/INR21.4/INR7.3b up ~6%/33%/115% YoY. Volume increased ~2% YoY. Realization/t grew ~4% YoY and EBITDA/t was up ~30% YoY to INR1,011
Highlights from the management commentary
* It posted strong volume growth of ~10% YoY in 3QFY26, driven by improved demand, deeper channel engagement, and focused sales execution. Its trade share stood at 62%, while premium product share was at 23% in 3QFY26.
* Blended fuel consumption cost was at INR1.36/kcal vs. INR1.31/INR1.38/kcal in 3QFY25/2QFY26. While blended fuel cost is likely to increase in the coming quarters due to higher petcoke prices, it is looking to mitigate this impact by increasing the blend of domestic coal, which is cheaper.
* Management maintained its medium-term capacity guidance of achieving ~75 mtpa by FY28E. The Jaisalmer greenfield expansion remains a key priority. While other project-related work is going as per the plans, it is likely to firm up its plan for the Jaisalmer plant in the coming months.
Valuation and view
* DALBHARA’s 3QFY26 operating performance (adjusted for one-offs) was below our estimates. Price pressure in the company’s key markets and higher variable costs have led to a decline in EBITDA/t. Cement demand increased in NovDec’26, which led to strong volume growth. The management is confident of a strong demand momentum in the coming quarter, with higher government capex. However, it is cautious on the near-term pricing trend. We believe the company should benefit from expansions in its core market (the South region) in the medium to long term.
* We estimate a revenue/EBITDA/PAT CAGR of 9%/14%/9% over FY26-28. We estimate a volume CAGR of ~7% over FY26-28E and an EBITDA/t of INR1,179/ INR1,142 in FY27/FY28E vs. INR1,019 in FY26E (avg. EBITDA/t of INR1,013 over FY21-25). At CMP, the stock is trading attractively at 12x/11x FY27E/FY28E EV/EBITDA and USD85/USD80 EV/t. We value DALBHARA at 13x FY28E EV/EBITDA to arrive at our TP of INR2,570. Reiterate BUY.
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