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EV/CE Valuation Framework Captures the ROCE Expansion Story

We upgrade DALBHARA from HOLD to BUY as we revise our 1) Volume / Realisation / EBITDA per ton and EBITDA assumptions higher (Exhibit 2) More importantly we now incorporate a robust EV to CE (Enterprise Value to Capital Employed) based valuation frame work (Exhibit 3) which allows us a rational basis to assign the right valuation multiples.

We forecast DLABHARA’s EBITDA to grow at a CAGR of 22.5% over the FY25-28E basis, our volume growth assumptions of 8.0%/10.0%/10.0%, and realisation growth of 4.5%/0.5%/0.5% in FY26E/27E/28E, respectively. We like DALBHARA’s capacity mix, which has a healthy North East market (~50%) tilt, while its South exposure (~32%) retains a nice upside optionality.

We arrive at a  1-year forward TP of INR 2,500/share for DALBHARA.  We now value DALBHARA on our EV/CE framework – we assign an EV/CE multiple of 1.75x/1.80x for FY27E/28E, which we believe is conservative given the doubling of ROCE from 5% in FY25 to ~10% in FY28E under reasonable operational assumptions. This valuation framework gives us the flexibility to assign a commensurate valuation multiple basis an objective assessment of quantifiable forecast financial performance of the company. We do a sanity check of our EV/CE TP using implied EV/EBITDA, P/BV, and  P/E multiples. On our TP of INR 2,500, FY28E implied EVEBITDA/PB/PE multiples are 12x/2.2x/27x. Regulatory uncertainty around higher state levies on limestone, soft patches of government spending on infrastructure/construction, sudden large spike in petcoke prices as a result of various global dynamics are risks to our BUY rating.

Results overall are in line with street expectations, but volumes came in a bit on the softer side:

DALBHARA reported Q4FY25 consolidated Revenue and EBITDA of INR40,910 Mn (+28.6% QoQ, 5.0% YoY) and INR7,930 Mn (+55.2% QoQ, +21.3% YoY) vs CEBPL estimates of INR42,091 Mn and INR8,292 Mn, respectively. In our view market expectation of Q4FY25 EBITDA was in the range of INR 7,500-7,750 Mn, so the reported numbers are ahead of street expectations. Total volume for Q4 stood at 8.6 Mnt (vs CEBPL est. 8.8 Mnt), up 28.4% QoQ and down 2.3% YoY, which is the only disappointing factor from the results.

Realization/t came in at INR4,757/t (+0.2 QoQ and -2.8% YoY), which is inline with CEBPL est of INR4,795/t. Total cost/t came in at INR3,835/t (-3.8% QoQ and -7.6% YoY). As a result, EBITDA/t came in at INR 922/t, which is an expansion of ~INR200/t QoQ, which is a touch ahead of market expectation while largely inline with CEBPL estimate of INR 945/t.

Pricing Tailwinds: North East market has witnessed price hikes of INR 10-15 per bag in the month of Apr, which is encouraging. Incentive income for FY26 is expected to be in the range of INR 3 Bn.

Targeting INR 150–200/t reduction in cost over 2 years despite raw material headwinds: Management has guided for cost savings of INR 75/t in FY26, though we factor in ~INR 50/t, mainly from lower power and fuel costs driven by higher Waste Heat Recovery System (WHRS) and renewable energy usage. WHRS capacity is set to rise from 72 MW in FY25 to 89 MW in FY26. We also estimate ~INR 20/t savings from freight, aided by more direct dispatches and shorter lead distances. However, raw material costs are expected to rise by ~INR 150/t due to a tax impact on limestone reserves, with ~20+% of DALBHARA’s capacity located in Tamil Nadu. Still, the company targets a total cost reduction of INR 150–200/t over the next two years.

Volume growth is driven by capacity expansion in South & East region: DALBHARA has announced a capex of INR35,000 Mn for FY26 to expand its cement capacity. The plan includes a 3.6 MTPA clinker and 3 MTPA grinding unit at its existing Belgaum plant (Karnataka), and a 3 MTPA greenfield grinding unit in Pune (Maharashtra). These projects are expected to be completed by FY26 and FY27, respectively. With this, we expect volume to rise to 31.8 MTPA in FY26 and 34.9 MTPA in FY27, as the company targets 55.5 MTPA of capacity by FY27-end.

Management Call - Highlights

• The capacity share of the top four cement companies has increased from approximately 47.5% in FY'22 to nearly 57% in FY’25.

• DALBHARA commissioned a 2.4 MTPA grinding unit at Lanka, Assam, and a 0.5 MTPA grinding unit in Bihar during Q4.