Q1FY24 Review: Dalmia Bharat: Subdued quarter; improving prospects

24 Jul 2023 , 01:35 PM

Dalmia Bharat (DBL) had a subdued performance in Q1 given its pricing strategy in the East led to market share loss. Company remains confident to regain market share and has guided for a 15- 17% YoY volume growth in FY24. Organic expansion remains on track; however JP asset acquisition is delayed to FY24 end. Analysts of IIFL Capital Services trim their FY24-25 Ebitda by 4-5% to account for weak Q1 margins and delayed JP acquisition. At 10.8x FY25 EV/Ebitda (US$90/MT on EV/MT) stock trades inexpensively, they maintain BUY.

Subdued quarter: 

In Q1FY24, DBL’s overall performance was weak – its 12.4% YoY volumes growth is likely to be slower than the industry (analysts of IIFL Capital Services expect 14-15% YoY growth), sequential decline in realisation (down 1.5% QoQ – higher than expectation) and flattish QoQ operating expenses (as benefits of lower fuel cost was offset by higher power cost). Resultantly Ebitda grew by 4% YoY to Rs6.1bn (11% miss) as 12.4% YoY volume growth to 7mtpa (in-line) was offset by 7% YoY decline in Ebitda/t to Rs871 (10% miss). Company shared that, it had changed its strategy in the East market to observe pricing discipline however this resulted in volume and market share loss in the region. Also, given the change in regional mix, the CC ratio deteriorated which also resulted in higher power and fuel costs.

Cost to moderate from Q2 onwards; JP acquisition delayed: 

The management shared that 1) it is re-working its strategy for the East and is confident of regaining lost market share, 2) with the falling fuel prices, company would cut down its dependence on grid power and shift to CPP; this coupled with falling petcoke prices would lead to savings in power and fuel costs from Q2 onwards, and 3) freight cost is also likely to decline as Q1 had an impact of inter-clinker movement. On pricing, company said some weakness is seen in July in both East and Southern markets, but company remains confident of price hikes post monsoon. On JP assets, company said due to delays in securing lenders approval the deal would be completed by FY24 end; in the interim company has entered into a tolling arrangement with JP to seed the market.

Trim estimates; maintain BUY: 

Analysts of IIFL Capital Services trim their FY24-25ii Ebitda estimates by 4-5% to account for weak Q1 performance and delays in integration of JP assets. On revised estimates, the stock trades at 10.8x FY25 EV/Ebitda – at 30% discount to market leader. They maintain positive on the stock given its ability to deliver industry leading volume growth and inexpensive valuations. Analysts of IIFL Capital Services value stock at 12x 2YF EV/Ebitda. Maintain BUY.