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Kotak Institutional
Dalmia Bharat (Add)
Target : ₹2,250
CMP: ₹2,015.25
Dalmia Bharat Q2FY22 EBITDA was 6 per cent ahead of our estimates with lower costs more than offsetting pricing pressure in East with 7 per cent q-o-q lower realisation. Divestment of non-core investments (IEX, Hippo) and focus on organic growth will help address investor concerns on capital allocation.
The company would reach 36 mtpa capacity in FY2022 and is embarking on the next phase of expansion. Despite aggressive growth, leverage remains low with net debt/EBITDA less than 1X over FY2022-24.
The ongoing expansion projects are progressing towards increasing total capacity to 38 mtpa by FY2023. The company is working towards land acquisition and equipment ordering for its next phase of expansion by end of FY2024E – 10 mtpa grinding capacity and 4.7 mtpa clinker.
The company detailed a capital-allocation policy in Q1FY22 and has started to walk the talk with (1) gradual divestment of non-core investments – Hippo and IEX, (2) focus on organic growth with starting the new organic expansions, (3) increase in shareholder payouts by declaring ₹4/share as interim dividend and (4) enhanced commitment towards carbon emission-reduction initiatives by setting up WHRS and solar power capacity up to 163 MW by FY2023.
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