Q3FY24 Review: Dalmia Bharat: Targeting volume-led earnings growth

29 Jan 2024 , 02:15 PM

Dalmia Bharat’s (DBL) Q3FY24 Ebitda grew 20% YoY to Rs7.75bn — largely in-line. DBL is focusing on volume growth (QoQ better than industry) and saw market-share gains across operating markets. Further, DBL is confident of achieving ~2x industry volume growth, aided by new capacity additions and foray into new regions. Further, with industry consolidation, the company is hopeful of better pricing discipline. At 12.5x FY25 Ebitda, DBL trades at 35% discount to peers – analysts of IIFL Capital Services expect valuation gap to narrow, led by healthy Ebitda growth (20% Cagr FY24-26). BUY. 

In-line Q3: 

DBL’s Q3FY24 Ebitda grew 20% YoY and 32% QoQ to Rs7.75bn — largely in-line. Volumes in core markets (ex-JP tolling) grew 2% YoY to 6.4mnt; though were up 9% QoQ (likely better than industry). DBL shared that despite the weak demand in the East markets, it managed to partially recover the lost market share in H1FY24. Ebitda/t grew 11% YoY and 19% QoQ to Rs1,138/t – largely driven by better realisations – up 3.5% QoQ to Rs5,286/t; while costs remain steady, as gains in softening energy prices were negated by higher freight cost. 

Targeting mid-teen volume growth: 

Mgmt remains sanguine about the overall demand and expects industry volume to grow at 8-9% p.a., for the next seven to eight years. Further, mgmt is confident that it would grow at 2x the industry volume growth aided by robust capacity additions, foray into new regions and further industry consolidation. DBL’ remains on track to achieve 75mnt by FY27 – the company to share detailed plans of the 16mn MT in the next quarter. On profitability, DBL expects Ebitda/t to be range-bound between Rs1,100-1,200/t in FY25. Further, mgmt. highlighted that sharp price hikes taken in early Q3 is largely reversed. On the cost front, it expects little optimisation from hereon, based on spot prices. On JPA asset, mgmt is confident to secure lender approvals and complete the acquisition of phase-1 (5.2mn Mt at Rs33bn) by Q4 end. 

Valuation gap to narrow; BUY: 

Analysts of IIFL Capital Services estimate DBL’s Ebitda to grow at 20% p.a., over FY24-26; driven by 12% p.a. volume growth and gradual expansion in Ebitda/t to Rs1,200/t by FY26. Net-debt-to-Ebitda is likely at 1.5x in FY25 post the JP acquisition; however, it would inch up above 2x ceiling set by management. DBL trades at 12.5x FY25 EV/Ebitda – 35% discount to large peers. Analysts of IIFL Capital Services expect valuation gap can to narrow with industry leading volume growth. They maintain BUY and value the stock at 12.5x FY26 Ebitda and raise their TP to Rs2550 (vs, Rs2,450 earlier).