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Sector Outlook: Positive
Sales volume moderates due to lacklustre demand
Dalmia Bharat reported revenue of Rs. 36,210 million, down 15% QoQ but flat YoY, due to lower demand and weaker cement prices over the past seven months. The company sold 7.4 million tonnes of cement, down 15% QoQ but up 6% YoY. Raw material costs were Rs. 779 per tonne, power and fuel costs were Rs. 1,003 per tonne, down due to lower pet coke prices and more renewable energy use. Logistics costs were Rs. 1,117 per tonne, helped by lower fuel prices and shorter lead distances (272 km vs. 289 km last quarter). Despite lower trade volumes, cost optimization improved margins. EBITDA was Rs. 6,690 million, up 2% QoQ and 9% YoY, with margins at 18%. EBITDA per tonne was Rs. 901, up 21% QoQ and 3% YoY. Profit after tax was Rs. 14,500 million, down 54% QoQ but flat YoY, with EPS at Rs. 7.52, down 55% QoQ but up 8% YoY. Net debt to EBITDA ratio remained stable at 0.17x. Renewable power contribution increased to 35% from 27% at the end of FY2024, and cement capacity rose to 46.6 million tonnes from 44.6 million tonnes last quarter.
Key Concall Highlights
- Top cement companies’ capacity share grew from 36% in 2013 to 48% by 2023, and now to 55% in 15 months, showing faster consolidation.
- The company aims to increase its capacity and volume share faster than the industry.
- Plans to become a PAN India player by 2031, targeting 110-130 MT capacity, with an interim target of 75MT by 2028.
- Management aims to grow at 1.5 times the industry rate, estimating an 8% industry growth in FY25, hinting at a 12% company growth rate.
- Identified cost reduction levers to reduce costs by Rs. 150-200 per tonne in three years through renewable energy and captive coal mines.
- Current capacity is 46.6MT, aiming to reach 49.5MT by year-end.
- Net sales realisation decreased due to brand mix improvement, price positioning, and discount rationalisation.
- Renewable energy share increased to 35%, targeting 50% by the end of the financial year.
- Quarterly capex was Rs. 660 crores, with 1MT capacity added at Kadapa and Ariyalur. Annual capex expected to be Rs. 3,500-4,000 crores for expansion, efficiency, land, and maintenance.
- Plans to exceed 100MT capacity by 2031, with detailed guidance expected in 12 months.
- Cement prices are 3% lower than last quarter, with no improvement expected until the third quarter.
- Management expects further industry consolidation, which will eventually improve margins and the sector overall.
- Current capacity utilisation is 65%, with growth potential as core markets expand, ensuring no loss in volume growth.
- Post-election, volumes are increasing but not fully. Management is hopeful for continued government support for economic growth, promising real estate demand in both rural and urban areas, and overall demand growth of at least 8% for the year.
Valuation and Outlook
Dalmia Bharat Ltd. is one of the lowest-cost cement producers in the country, consistently earning better margins. In the last quarter, general elections, intense heat, and labour shortages led to lower demand. Despite this, Dalmia Bharat maintained good profit margins due to efficient operations and lower commodity prices. The industry is seeing active consolidation, changing market shares and keeping cement prices low. However, demand is expected to grow by 8% this year. Demand and prices should rise with the festive season in the third quarter and the end of the monsoons. Margins may stay moderate next quarter due to stable input costs and lower prices. Overall, demand is set to increase due to government infrastructure projects and improved rural and urban demand. We remain positive about the company’s medium to long-term performance due to its operational efficiency and a favourable macro environment.
