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Dalmia Bharat delaying much-awaited expansion only a short-term dampener

Reacting to the decision of Dalmia Bharat management's decision to postpone announcement of its capital allocation policy due to the pandemic, the stock ended Friday's session down 2% on the NSE. On Monday, the stock opened in the green, but was flat. (MInt)Premium
Reacting to the decision of Dalmia Bharat management's decision to postpone announcement of its capital allocation policy due to the pandemic, the stock ended Friday's session down 2% on the NSE. On Monday, the stock opened in the green, but was flat. (MInt)

  • While the ongoing capital expenditure plans would continue, the management would decide on any new expansion capex post the formation of the capital allocation policy
  • Dalmia Bharat stock is likely to trade sideways in the near-term as the market awaits clarity on the expansion plan

MUMBAI : Cement manufacturer Dalmia Bharat Ltd reported decent earnings in the March quarter. Aided by negative tax rate, its net profit exceeded analysts estimates. Other earnings parameters such as revenue growth and its operating performance were in-line.

But the company's management said it has postponed the announcement of its capital allocation policy due to the pandemic. While the ongoing capital expenditure (capex) plans would continue, the management would decide on any new expansion capex post the formation of the capital allocation policy. Also, it would decide on the IEX divestment accordingly.

Reacting to it, the stock ended Friday's session down 2% on the NSE. On Monday, the stock opened in the green, but was flat.

According to analysts at Emkay Global Financial Services Ltd, the Dalmia Bharat stock is likely to trade sideways in the near-term as the market awaits clarity on the expansion plan.

While this could weigh on the stock's short-term movement, analysts say, investors in the stock should focus on other long-term positives.

For instance, its ongoing expansions in the east bode well for its market share. The company's management said that the commercial operations at its Odisha grinding unit, Murli Industries, and the Bihar grinding unit would commence in Q2FY22, H2FY22, and FY23, respectively.

"With ~35% capacity growth over FY20-22E, DBL is well-placed to gain market share. We estimate a strong 16% CAGR in volumes over FY21–23E," analysts at Motilal Oswal Financial Services Ltd said in a report on 30 April. CAGR is short for compounded annual growth rate.

Against the backdrop of rising input costs, higher exposure to east would mean better operating margins. Channel checks show that the industry has taken a sharp 20% price hike in east in the last two months and this region contributes nearly half of Dalmia Bharat's total volumes.

Also, the company ongoing efforts to de-leverage would support is balance sheet strength. In the March quarter, the company repaid gross debt of Rs850 crore and Rs2,220 crore in FY21 using its operating cash flows, the working capital release, and the dilution of the disputed mutual fund units. Its net debt/Ebitda stands at 0.04 times. Ebitda is short for earnings before interest, tax, depreciation, and amortization.

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