Top Conviction Ideas : Buy Dalmia Bharat Ltd for Target Rs. 2,550 - Axis Securities Ltd
Recommendation Rationale
* The company had earlier announced a comprehensive capacity expansion plan involving a 6 MTPA cement unit and a 3.5 MTPA clinker unit at Kadapa (clinker capacity: 3 MTPA) and a 3 MTPA bulk terminal in Chennai, entailing a total capital outlay of Rs 3,287 Cr. These projects are targeted to become operational by Q2FY28. Additionally, its 6 MTPA capacity addition in the western region (3 MTPA each at Pune and Belgaum) is progressing as per schedule and is expected to be commissioned by Q4FY27.
* Dalmia has also commenced trial runs at its 3.6 MTPA clinker unit in Umrangso, Assam, with commercial production expected by Q3FY26, marking a key milestone in its ongoing capacity expansion program. With improved utilisation and incremental capacity coming onstream, the company is projected to deliver a 7% volume CAGR over FY25–27E.
* The company’s quarterly performance was aided by a 7% YoY increase in realisations, reaching Rs 4,952/tonne. With cement prices largely remaining stable, margins are expected to stay robust in FY26. In parallel, Dalmia is actively pursuing cost-saving initiatives, targeting a reduction of Rs 150–200/tonne over the next two years through enhanced operational efficiency and process optimisation.
* These efforts are expected to sustain profitability and drive margin expansion going forward. We pencil in higher EBITDA margins in the range of 21-22% over FY26-27E.
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