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We downgrade Dalmia Bharat to REDUCE from Buy owing to limited growth catalysts due to i) uncertainty over the Jaypee deal—as admitted to the NCLT by lenders—impacting the company’s market diversification and delaying its plans of becoming a pan-India player; ii) no major announcement on near-term organic plans; and iii) limited levers for cost improvement, in our view. We exclude acquisition of JP assets from our estimates, implying lower volume growth. Prices in its key markets like the South and East are likely to remain volatile owing to capacity additions. Accordingly, we now build-in ~8% volume CAGR with EBITDA/t in the Rs900-1,000 range over FY24-27E. Also, factoringin lower cement prices, we cut our EBITDA estimates by 7-16% for FY25-26. Stripping out the JP assets, we see limited potential for any stock re-rating for Dalmia. Accordingly, we cut our target EV/E to 11x (vs 12.5x earlier) and revise down our Jun-25E TP to Rs1,800/share, post quarterly roll-over.

Result Summary

Dalmia’s consolidated volumes increased 10% YoY/2% QoQ to Rs6.7bn, coming in 12%/ 19% (respectively) above Consensus’ and our estimates, owing to better than expected realization. The positive surprise on realization—decline of 6% YoY/broadly flat QoQ to Rs4,877 (vs our estimate of a 2% QoQ decline)—was on account of better brand mix, improvement in price positioning, and rationalization of discounts. EBITDA/t increased 3% YoY/21% QoQ to Rs901 (Rs158/t sequential improvement). Volumes increased 6% YoY/declined 16% QoQ to 7.43mt, which was broadly in line with estimates. Total cost/t declined 8% YoY/4% QoQ to Rs3,976, matching our estimates. The company has reported exceptional item of Rs1.13bn (pre-tax) on account of a one-time provision being created as JPA is undergoing insolvency proceedings.

What we liked: Broadly flat realization on sequential basis

What we did not like: Uncertainty over the JP deal; delay in announcement of organic expansion plan

Earnings call KTAs:

i) The management postponed its target of achieving 75mt capacity by a year to FY28 (vs FY27 earlier), as JPA moved to NCLT for insolvency proceedings. It maintained its long-term target of >110mt capacity by FY31. ii) The next phase of organic expansion is likely to be announced in 12 months. iii) Capex spends stood at Rs6.6bn in Q1FY25. FY25 capex guidance was Rs35-40bn, largely towards organic expansion, efficiency improvements, and maintenance. iv) Cement prices have declined 2-3% QoQ in Q1FY25, whereas exit prices are lower than the Q1 average prices by another 3%. The mgmt. expects prices to improve from Q3FY25. v) Dalmia has a sustainable cost-savings potential of Rs150-200/t over the next three years, via improvement in RE power share, usage of captive coal mine, reduction in lead distance, and other improvements like direct despatches, etc.

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