Home >Markets >Mark To Market >Dalmia Bharat’s pan-India ambition is making investors jittery

Expansion plans are usually music to the ears of investors. But Dalmia Bharat Ltd’s plan to become a pan-India cement maker in the next decade seems to have given investors more concern than comfort.

The company said it intends to achieve a production capacity of 110-130 million tonnes per annum (mtpa) by 2031, which translates into 15% CAGR. CAGR is short for compounded annual growth rate. The firm aims to increase its capacity to 48.5mtpa in the next three years and 60mtpa by March 2025.

This would be done through a series of greenfield and brownfield expansions across various regions. The management said that apart from its ongoing expansion, it will add more capacities in the East, North-east and South markets.

Aiming high
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Aiming high

It is also looking to boost its grinding capacity in the South through a greenfield unit of 3mtpa to cater to the markets in Tamil Nadu and Kerala.

As far as non-core businesses are concerned, the management said that it is looking to divest its retail business in the next three-four months and the divestment from the refractory business is awaiting National Company Law Tribunal’s nod.

But Dalmia Bharat’s stock fell 4.5% on the NSE on Wednesday. According to analysts, Dalmia’s June-quarter earnings were largely in line with expectations. Similar to peers, the key highlight was higher realizations, which helped operating performance amid weak volumes. Ergo, the pressure on the stock is likely to be because of its aggressive expansion plans.

Expansion plans don’t come cheap. The management said that it would be spending around 2,000 crore for ongoing expansion and 4,700-5,000 crore for new capacities. Dalmia Bharat is looking at both organic and inorganic routes to increase its capacity, but its priority would be organic expansion, the management added.

“The company’s increased focus on its core cement-making business is positive. However, its 10-year plan, which still lacks many granular details, is too ambitious for the Street to digest," said an analyst with a domestic brokerage house, requesting anonymity.

Apart from expansions, the management aims to return up to 10% of operating cash flow to shareholders in the form of dividends and buybacks.

“To meet these promises, cash flows have to be very strong and for that, cement demand and prices have to remain robust. So, in a scenario of subdued demand and volatile cement prices, the company will have to look at debt, which is a concern," added the analyst.

To be sure, as of Q1FY22, Dalmia Bharat is net debt-free. In case of inorganic expansion, its net debt/Ebitda could exceed its comfort level of two times; however, the company has assured that it would try to bring it back to two times in a definite time-frame. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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