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Dalmia Bharat Ltd. reported consolidated volumes of 6.7mnt in Q2FY25, reflecting a YoY Growth of 8.1%. The QoQ drop was of 9.5%, primarily due to elections, the monsoon season, and floods in specific regions. Management expects the company’s volume growth in FY25E to be 1.5x times the industry average. Consolidated revenue for Q2FY25 amounted to INR30,870mn, declined by 2.0% and 14.7% YoY/QoQ due to lower volumes and realizations. EBITDA/t for the quarter was INR648/t, down 31.8% and 28.3% YoY/QoQ, impacted by higher other expenses. PAT stood at INR490mn, down 60.2% and 66.2% YoY/QoQ, with EPS at INR2.5. The company’s net debt-to-EBITDA ratio remained healthy at 0.25x.

* Total cost/t to reduce by INR150-200/t: The total cost/t for Q2FY25 stood at INR3,960/t, reflecting a decrease of 4.1% and 0.7% YoY/QoQ . Management has outlined plans to further reduce the total cost/t by INR150-200/t over the next two years, with INR 50/t of the reduction expected in FY25E. This reduction will primarily be driven by lower variable costs, supported by a higher share of renewable energy in operations. The company has secured 151 MW of renewable power through solar and wind under group captive agreements. These RE plants are scheduled for commissioning in FY25E and FY26E, with a target to achieve a 50% RE power share by Q4FY25E. Additionally, management is focused on reducing logistics costs by shortening lead distances and adopting direct dispatch strategies, aiming for a savings of INR 50/t in logistics. Further savings are expected from lower fuel costs. Fuel expenses for Q2 stood at INR 1.36/kcal, with management anticipating further improvements in the coming quarters.

* Near-term capex plans: For FY25E, management has revised its capex guidance to INR30,000-33,000mn, down from the previous estimate of INR35,000-40,000mn. Of the total capex, INR 13,860mn has already been spent in H1FY25, with the remaining amount expected to be deployed in H2FY25E. The investment will focus on organic expansion, efficiency improvements, land acquisition, and maintenance. The ongoing capacity expansion of 2.4mnt in the northern and eastern regions is on track to be commissioned in H2FY25E. Additionally, a debottlenecking project to enhance clinker capacity by 0.9 mnt is expected to be completed within the same period. For FY26E, the projected capex of INR25,000mn, along with a maintenance capex of INR2,500mn. The company is targeting a total capacity of 49.5 mnt by FY25E and aims to achieve 75mtpa by FY28E.

* Demand is expected to rebound: During the quarter, realizations are declined by 9.3% and 5.8% YoY/QoQ to INR 4,607/t, As of October, prices remain aligned with the Q2FY25 average. However, management expects a recovery in cement prices during H2FY25E, supported by improving demand and market conditions. Management anticipates H2FY25E will perform better than H1FY25. This anticipated recovery driven by increased construction activity and seasonal demand.

View and Valuation: The continuity of the incumbent government ensures policy stability and a heightened focus on infrastructure spending, supporting the long-term growth of the cement sector. Management projects the industry to grow by approximately 6% in FY25E, with Dalmia Bharat’s volumes expected to expand at 1.5 times the industry rate. They also aim to maintain EBITDA/t in the range of INR 900-1,000 for FY25E, reflecting operational efficiency and stable margins. We have introduced FY27E and expect Revenue/EBITDA/PAT to grow at a CAGR of 3.1%/9.6%/13.9% respectively over FY24-FY27E. We downgrade over rating to Reduce and arrive at a target price of INR1,922, implying a EV/EBITDA of 12x on Sep- FY27 EBITDA.

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