Dalmia Bharat's share price rises up to 3.5% post its Q2 results beat analysts expectations on lower costs

 Q2 results: Dalmia Bharat share price rose up to 3.5% in morning trades on Monday post its September quarter performance that was reported over the weekend.

Dalmia Bharat reported a healthy volume growth of 6.6% year-on-year to 6.3 million tonne (mt) amidst strong cement demand. With improving cement prices in the country, the Dalmia Bharat’s per tonne profitability at ₹950 per tonne improved over ₹875 seen in the previous quarter and ₹653 in the year-ago quarter, as per analyst’s calculations. The decline in costs, like that of freight and decline in other expenses, also helped leading to profitability improvement for Dalmia Bharat.

Analysts at Jefferies India Pvt Ltd in their first cut post results said that the earnings season for the cement sector started on a tad positive note with Ebitda beat for Dalmia Bharat. The company reported 55% YoY growth in Ebitda for Q2, which was 7% better than Jefferies' expectations and was driven by lower costs for Dalmia Bharat.

Ebitda stands for earnings before interest tax depreciation and amortization.

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Overall cost per tonne for Dalmia Bharat had declined 8% YoY which was 4% lower than analysts' expectations largely driven by lower freight and other expenses. Dalmia Bharat recorded 6.6% YoY volume growth It could have been better but there was lower growth seen in East India said analysts.

The cement prices in the country continued moving up led by price hikes and all India Cement prices averaging at ₹357 per 50 Kg bag were an improvement on ₹355 per 50 kg bag in the previous quarter and ₹349 in a year ago quarter. The price hikes had surprised in the seasonally weak quarter that remains affected by monsoon season. However strong cement demand from infrastructure sector and the lower rainfall meant that construction activities did not see significant impact.

Better volumes and improved realizations for Dalmia Bharat meant that the Dalmia Bharat’s revenue increased 6.0% YoY to Rs. 3,149 Crore. Reported Net profit for the Quarter at ₹123 crore grew 162% year-on-year.

Dalmia Bharat is also expanding its capacities and the quarter saw Cement capacity increase to 43.7 million tonne (mt) compared to 41.7 mt per annum at the end of Q1. Its Clinker capacity increased to 22.2 mt.

Dalmia Bharat in the last 3.5 years has added 17.2 mt cement capacity, which is 65% growth over FY20 capacity. Dalmia Bharat plans to reach 110 ‐ 130 mt by 2031.

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As rising capacities will boost Dalmia Bharat’s cement volumes, the realizations improvement hinges on sustaining price hikes that have been announced by the cement companies in Q2 and the start of Q3.

Analysts at Antique Stock Broking said that “Recent sharp price hikes in Dalmia Bharat’s key markets of the East and South, if sustained, are likely to improve the company's realizations and Ebitda/ton by more than ₹300 per tonne in second half of FY24 which may drive consensus earning upgrades”. They broadly maintain our FY24-25E EBITDA while raising their target price to ₹2,500 per share from ₹2400 per share earlier.

The stock trades at 14.6 times and 11.6 times FY24 and FY25 estimated EV/EBITDA and at an Enterprise value per tonne of $111 and $109 as per analysts at Motilal Oswal Fiancial Services. It has traded at an average Enterprise value to Ebitda ratio of 10.5 times and 9.5 times in the last 5 and 10 years respectively, they added.

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