Buy Dalmia Bharat; target of Rs 2250: Motilal Oswal

Motilal Oswal's research report on Dalmia Bharat

Dalmia Bharat (DALBHARA)’s 2QFY25 performance was weak as expected as its EBITDA declined 26% YoY to INR4.3b (5% miss) and EBITDA/t was down 32% YoY to INR650 (est. INR700). OPM contracted 4.7pp YoY to 14%. PAT declined 54% YoY to INR550m (est. INR571m). Higher volume growth (+8% YoY; +3% v/s estimates) and better cost controls were key positives; though; realization decline of 6% QoQ was weaker than our estimate of ~2% decline.Management believes that muted cement demand in 1HFY25 led to lower capacity utilization and weak pricing. Demand is expected to improve in 2H, led by a pick-up in constriction activities, private capex, and government-led infrastructure projects. It expects demand to grow at 8% YoY in 2HFY25 and 6% YoY in FY25 (previous estimate of ~8%). Better demand should lead to price improvements; though competitive intensity needs to be monitored.

Outlook

The stock has corrected ~25% since Dec’23, factoring in delayed capacity addition plans and weak operating performance due to sharp price corrections in its core markets. The company is among the least cost producer in the industry, backed by a higher blending ratio, green power share, and lower freight cost. The stock is currently trading at 10x/9x FY26E/FY27E EV/EBITDA. We value the stock at 12x Sep’26E EV/EBITDA to arrive at our revised TP of INR2,250 (earlier INR2,390). Reiterate BUY.