Dalmia Bharat Limited Stock Research Report

DEMAND TAILWINDS AND STRONG MARKET POSITION TO DRIVE GROWTH…

Dalmia Bharat Limited (DBL), established in 1939, has emerged as one of the fastest-growing players in the Indian cement sector. It holds a 5% share of India’s cement capacity in its operational areas. DBL boasts a total cement production capacity of 46.6 million tonnes per annum (mtpa), a clinker capacity of 22.6 mtpa, and a power generation capacity of 397 MW, including waste heat recovery systems (WHRS) and solar power. The company’s operations extend across 16 locations in India, encompassing 10 integrated plants and 6 grinding units, supported by a robust distribution network of 49,000 channel partners nationwide.

Key Rationale

◼ Capacity expansion to sustain growth:

The company’s total cement grinding capacity is projected to increase to 49.5 mtpa in FY25E from the current 46.6 mtpa, which will support its volume growth. With the current capacity utilization at 60%, there is considerable potential for the company to enhance its capacity utilization. Additionally, the ramp up of recently commercialized new capacities is expected to provide a significant growth impetus. We anticipate DBL will achieve a revenue CAGR of 8% over FY24-FY26E, driven by a volume CAGR of 9% during the same period.

◼ Efficient operations with a focus on reducing costs further:

DBL’s integrated operations, superior cement/clinker ratio, introduction of Portland composite cement, digitization of its sales channels, and effective resource utilization make it one of the lowest-cost cement producers in India. Additionally, various cost optimization initiatives at its operating facilities are expected to enhance margins going forward. The company also plans to increase its share of green energy in its overall power mix to 35-45%, which will further reduce power and fuel costs. Supported by these cost optimization measures and improved price realization, we expect DBL’s EBITDA margin to improve to 19% from the current 18% by FY26E.

◼ Higher consolidation to benefit large players:

Between 2013 and 2024, the market share of large players in the cement sector has risen from 46% to 55%. With the accelerating pace of consolidation and capacity expansion among top players, their overall market share is expected to increase further. This trend is likely to positively influence cement pricing, economies of scale, and supply chain efficiency. As one of the top five players in the country, the company is well-positioned to benefit from this consolidation trend in the medium to long term.

◼ Cement demand in its operating regions is anticipated to remain robust, supporting the company’s projected double-digit growth going forward.

Dalmia Bharat Limited Stock Research Report

◼ Outlook:

Cement demand is anticipated to stay strong, driven by infrastructure development. The industry is expected to grow at 1.2 times the GDP growth, which is projected to be 6.5%-7% over the next several years.

◼ Given the company’s superior positioning in key markets in the East and South, exposure to the West region, the government’s focus on infrastructure and affordable housing, increasing real estate demand, new capacity ramp-up, and ongoing cost optimization measures, DBL is expected to deliver stable performance. The company is projected to grow its Volume/Revenue/EBITDA/APAT at a CAGR of 9%/7%/9%/17% over FY24-FY26E.

◼ Valuation:

The stock is currently trading at 13x and 11x FY25E/FY26E EV/EBITDA and EV/tonne of $88 and $85. Valuation remains attractive.

◼ Key risks: a) Lower demand and contraction in Cement prices impacting realization; b) Further rise in input prices hampering margin profile.

Key Financials