As the cement sector struggles with muted prices, some firms may feel more heat than others. A case in point here is Dalmia Bharat Ltd. Its two core markets– east and south–are poised to see increased pricing pressure.
A spree of capacity additions in the east by various cement companies would lead to a significant influx of cement supply going ahead. In the south, industry dynamics are fast changing due to consolidation. The fight for volume share in this region is set to intensify now that pan-India-focused companies Ambuja Cements Ltd has acquired Penna Cement Industries, and UltraTech Cement Ltd has bought a stake in The India Cements Ltd.
Further, with Jaiprakash Associates (JAL) entering insolvency proceedings, there are concerns over Dalmia Bharat’s medium-term capacity expansion target. A BOB Capital Markets Ltd report dated 12 December said, Dalmia Bharat’s drive to add market share through expansion could receive a setback with limited alternatives for JAL assets in central India. Dalmia Bharat targets 75 million tonnes per annum (mtpa) capacity by FY28 from 46.6 mtpa currently.
With these unfavourable factors at play, the positives of tight cost control are overshadowed. Dalmia Bharat’s focus on cost savings by cutting energy expenses has helped it become one of the lowest-cost producers in the industry. It aims to increase the share of renewable energy from around 39% currently to 45% and 50% by FY25 and FY26-end, respectively.
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It is also working on achieving cost savings of ₹150-200 per tonne in the next few years via various initiatives. But for now, earnings prospects are bleak mainly due to weak prices. BoB Capital Markets has pruned its Ebitda estimates for FY25 by around 1%, FY26 by 10% and FY27 by 9%.
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Meanwhile, its capacity expansions of 2.4 mt in the northeast and 0.5 mt in Bihar are expected to be commissioned in the second half of FY25. Increasing foothold in newer geography of the northeast could provide some respite in terms of incremental capacity addition and prices as core markets face challenges. Capital expenditure for FY25 is pegged at ₹3,000-3,300 crore, which will be spent on capacity expansion, land acquisition, and renewable energy projects. With increased thrust on expansion, debt position will be monitorable, considering that net and gross debt inched higher sequentially in Q2FY25.
All said, the stock’s performance has been a disappointment, falling 17% so far in CY24, underperforming pan-India focussed larger peers. At FY26 EV/Ebitda the stock is trading at a multiple of 11x, shows Bloomberg data, a discount to some competitors. This gap in valuations is likely to persist, at least in the near term.
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