Dalmia Bharat – Strong realisations drive Q1 earnings

- Cement volumes marginally higher YoY
- Realisations boosted top line and operational performance
- Acquisition of Murli Industries subject to conditions
- Cement demand has weakened in recent months

- Trading at 9.7 times FY20 estimated EV/EBITDA


Dalmia Bharat, India’s fourth-largest cement maker, started the year on a healthy note. Realisation-led top line growth, along with margin expansion, aided the operational performance in the June quarter.


Key result highlights

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Dalmia Bharat’s quarterly revenue rose 7 percent year-on-year (YoY) to Rs 2,537 crore. Strong realisations in its key operating markets (East and South) drove the top line during this quarter. Cement demand continued to moderate as the volumes increased by just 1 percent YoY to 4.6 million tonnes.


Gross margins were higher on sharp decline in raw material costs - mainly slag. Earnings before interest, taxes, depreciation and amortisation (EBITDA) margin also expanded 500 bps YoY to 26.4 percent.

Steep price hikes at the start of the year drove the blended realisations higher both on a sequential and yearly basis. Dalmia’s realisations in Q1 were higher by 6 percent YoY and 9 percent quarter-on-quarter (QoQ).

Increase in EBITDA per tonne to Rs 1,470 was led by uptick in realisations and stable cost base. Power and fuel costs were impacted by slow ramp-up of Kalyanpur plant and absence of coal linkages. This was, however, offset through operational efficiencies. Freight expenses as well as employee expenses were marginally higher than the same quarter last year.


The company has started commercial production at its Kalyanpur Cement (1.1 million tonnes capacity) which has been renamed as DDSPL. The unit is operating at a capacity utilisation of around 45-50 percent and the same is anticipated to reach 60-65 percent over the next 3-4 quarters.

The company has received a go-ahead from the National Company Law Tribunal on acquisition of Murli Industries. However, completion of transaction is subject to two conditions as Dalmia is seeking a reinstatement of its mines cancelled by the government, along with a revival of GST incentive by Maharashtra state government.

Given the recent slowdown in market environment, the company has lowered its revenue and volume guidance to 6-8 percent for 2019-20. The capital expenditure for Q1 stood at nearly Rs 300 crore and spend for the full year has also been revised downwards to Rs 1,100-1,200 crore.

Outlook and Recommendation

Driven by large-scale infrastructure projects, the demand for cement has been fairly strong for the past 6-8 quarters. However, concerns regarding liquidity squeeze, along with a slowdown in government spending, pose a near-term risk to the growth of the cement industry. Despite the recent weakness, the medium- as well as long-term outlook remains intact as the government commitment on infrastructure and housing development augurs well for the cement sector.

While near-term growth prospects appear subdued, long-term investors should capitalise on the weakness in the stock price as Dalmia has consistently outperformed larger peers both on the volumes as well as margin front. We expect FY20 earnings to be aided through margin improvement and anticipate a volume-led earnings growth from FY21 onwards.

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Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more. First Published on Aug 6, 2019 03:40 pm

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