Buy Dalmia Bharat; target of Rs 2500: Motilal Oswal

Motilal Oswal's research report on Dalmia Bharat

Dalmia Bharat (DALBHARA)’s key markets (the South and East regions) witnessed a higher price correction (down 8-9% QoQ) vs. other regions (down 3-7% QoQ) in 4QFY24. However, the company is likely to report double-digit volume growth in 4QFY24, supported by healthy demand and market share gains. We cut our EBITDA estimates by 4%/8%/8% for FY24/FY25/FY26 due to weak pricing, which was partly offset by higher volume growth and cost reduction initiatives. Further, a delay in the acquisition of Jaiprakash Associates (JPA)’s cement assets (announced in Dec’22) remains an overhang on the stock. The approval process from various banks is pending and is taking longer than anticipated. However, DALBHARA’s organic expansion plans are on track. It will add clinker and cement capacities of 4.9mtpa each through a mix of greenfield and brownfield expansions by FY25.

Outlook

The stock has corrected 15% in the last three months due to concerns of lower profitability because of a decline in cement prices. We value the stock at 12x FY26E (earlier 13x) EV/EBITDA to arrive at our revised TP of INR2,500 (earlier INR2,800). The stock offers an upside potential of 25% from current levels. Reiterate BUY.

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