Sturdy volumes, market share gains to boost Dalmia Bharat's prospects

Dalmia Bharat’s recent announcement of the restructuring of its operations and bringing its refractory under a single entity is a positive one, for the cement maker. But, apart from this, and more importantly, the company has continued to expand capacities, a key factor driving its fortunes. This has also helped Dalmia Bharat post volume growth of 8 per cent year-on-year to 4.47 million tonnes (MT) in the September quarter (Q2), thereby beating the trend of declining volumes seen by many of India’s leading cement manufacturers.

While the company could grow volumes, a weak demand environment meant a decline in realisations. The company’s key markets such as East and South India saw the steepest sequential decline in cement prices. The 50 kg bag price in East India averaged Rs 339, much lower than Rs 359 in June quarter and marginally lower than Rs 340 a year ago. South India saw steeper decline with the prices averaging Rs 345 a bad, versus Rs 365 in the previous quarter but a tad better than Rs 340 a year ago. Consequently, blended cement realisations declined 1.6 per cent year-on-year to Rs 5,002 a tonne, say analysts.

Declining costs of energy (pet coke) and logistic (diesel), coupled with volume growth meant that operating margins could still grow 260 basis point (bps) year-on-year; sequentially margins fell by 500 bps. Hence, profitability per tonne at Rs 1,063 was up 13 per cent year-on-year, but down 27 per cent sequentially.

While one is hopeful of a revival in demand during second half of FY20 and even the management is expecting the same, analysts at Anand Rathi say that with fresh capacities coming up and prices in the East rising, they expect volume and revenue growing well over FY19-21.

Post the National Company Law Tribunal (NCLT) approving resolution plan for three MT capacity 

of Nagpur-based Murli Industries, this plant is expected to revive by first half of FY21. The Kalyanpur one MT plant is already ramping up, while the eight MT of expansion plans in East India are also on track too. Analysts at JM Financial say that post expansion, Dalmia Bharat will become a major player in East with a combined capacity of 18.2 MT per annum with capacity-based market share of 20 per cent.

The capacity expansions and market share gains is keeping analysts positive on the company. Those at Motilal Oswal Financial Services, for instance, maintain their positive view on the company due to reasonable valuations and an estimated 26 annual growth in earnings over FY19-21.