Dalmia Bharat - Prices Soft In Key Markets; But Volume Growth Should Be Better: Motilal Oswal

Motilal Oswal Report

Despite the significant expansion, Dalmia Bharat Ltd.’s leverage remains low aided by strong volume growth (at ~15% compound annual growth rate over FY14-24E), improvement in profitability (20% Ebitda compound annual growth rate over FY14-24E), and divestment of non-core assets (divested its entire investments in refractory business, retail businesses for all construction and building materials, and partial stake in IEX).

Its net debt stood at Rs 4.3 billion, and net debt-to-Ebitda ratio was at 0.16 times as of December 2023.

Dalmia Bharat’s net debt-to-Ebitda is estimated to remain below two times, factoring in the expected cash outflow of Rs 33 billion for Jaiprakash Associates’ cement asset acquisition, and Rs 35 billion for organic growth plans in FY25E.

The stock currently trades at 11 times/9.5 times enterprise value/Ebitda and enterprise value/tonne of $94/$92 for FY25E/FY26E.

We have cut our Ebitda by 4%/8%/8% for FY24E/FY25E/FY26E, given the drop in realisation/tonne.

We value the stock at 12 times FY26E (earlier 13 times) EV/ Ebitda to arrive at our revised target price of Rs 2,500 (earlier Rs 2,800).

The stock offers an upside potential of 25% from current levels. Reiterate Buy.

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