Q2FY24 Review: Dalmia Bharat: Weak Q2, improving outlook

17 Oct 2023 , 11:55 AM

Dalmia Bharat’s (DBL) Q2FY24 Ebitda was up 55% YoY (flattish QoQ) to Rs5.9bn, but missed estimates due to lower volumes. For the second consecutive quarter, DBL lost market share in East (Bihar and West Bengal). Mgmt is confident of delivering aboveindustry volume growth from Q4 onwards. Despite weak Q2, analysts of IIFL Capital Services upgrade their FY25-26 Ebitda by 4-6% as they build in recent price hikes, leading to better profitability. They value DBL at 12.5x H1FY26 EV/Ebitda with TP of Rs2,450. Maintain BUY. 

Miss estimates: 

DBL’s Q2FY24 Ebitda grew by 55% YoY (-3% QoQ) to Rs5.89bn; below estimate, on subdued volume growth. Q2 volumes grew 6.6% YoY to 6.2mn mt – below expected industry volume growth of 10- 11% YoY. DBL shared its new pricing and distribution strategy impacted volumes leading to MS loss in East region. Volume growth in other regions was above industry; the company supplied 0.3mn mt in Central India under tolling arrangement with JPA. On profitability, Ebitda/t grew by 10% QoQ and 46% YoY to Rs955/t, supported by lower operating costs. Power & Fuel costs fell 12% QoQ and 27% YoY to Rs1,132; on falling fuel prices. DBL added 6.7mn MT in the last 12 months (15% of total); resultantly, capacity utilisations fell to 56% in Q2FY24 vs 67%/63% QoQ/YoY. 

Improving outlook:

DBL mgmt shared that cement prices are up by Rs40-50/bag in East and by Rs30/bag in South – this would aid profitability in H2. Further, several measures are undertaken to arrest market-share loss in East and company is confident of delivering above industry growth from Q4FY24. On JPA acquisition, mgmt reiterated that the transaction will conclude by Mar’24, increasing DBL capacity to 52mn MT. Organically, DBL plans to add 3.4mn MT in H2FY24 and FY25. The capex for this will range around Rs60-65bn (Rs35bn for JP assets) in FY24 and Rs35bn in FY25. JPA acquisition to double the net debt to Rs30bn; however, net-debt/Ebitda will still be at manageable levels (~1x). 

Upgrade estimates; BUY: 

Analysts of IIFL Capital Services upgrade their FY25-26 Ebitda by 4-6% on improving profitability outlook. Although Mr. Mahendra Singhi’s term as an MD ends in December 2023; there will be no disruption, since Puneet Dalmia will take charge (Mr. Singhi will be associated with the DBL in an Advisory role). The company remains focused on becoming a scale player with pan-India presence. Analysts of IIFL Capital Services maintain BUY and value the stock at 12.5x H1FY26 EV/Ebitda with TP of Rs2,450.