The year gone by has been volatile for the cement industry, although the demand for cement was decent in the country, supported by the Centre’s infrastructure push. The energy cost inflation has raised the input cost for cement manufacturers. In addition, price hike could not be effected to set off the increased energy and fuel cost. Given this, most major cement players have reported flattish returns in the last one year, with volatile intra-year movements in shares.

Dalmia Bharat is the fifth largest cement player in the country in terms of capacity, whose stock is among those with flattish returns. The stock is now trading at a one-year forward PE of 32.7x against its 5-year historical average of 36.4x. While the company is trading expensive on a PE basis, it is relatively cheaper on replacement cost/EV/tonne basis. Given its large size, growth prospects and potential to capitalise on long-term India growth story, investors can continue to  hold the stock.

Business and prospects

Based out of southern and eastern markets, the company has a capacity of 37 million tonnes as on September 30, 2022, with plans to increase capacity to 49 million tonnes by FY24. The long-term objective is to boost capacity— from 110 million tonnes to 130 million tonnes by 2031.

The company seeks to become a pan-India player and therefore eyes new geographies. The management has stated that the expansion will be organic but in case there is an inorganic opportunity it will be considered.

The recent acquisition of the assets of Jaypee cement in December 2022 will further increase capacity. This acquisition will give 10 per cent of installed capacity in central markets, which accounts for 15 per cent of total cement demand of the country; the company also has limestone reserves there. Dalmia Bharat’s leverage profile is strong, with close to zero net debt. The net debt/EBITDA of the company is 0.32x as on September 30, 2022. This positions it well to tap growth opportunities.

Cement production is an energy-intensive process, therefore power and fuel cost under normal conditions, generally account for 20-25 per cent of the sales revenue. The company is increasing its focus on renewable energy to optimise this cost. The total renewable energy capacity by FY24 will be 328 megawatts, which will be equivalent to the company’s current captive power capacity. By 2030, Dalmia Bharat aims to transition to 100 per cent renewable power.

The company’s current markets are doing well.  The southern markets have always enjoyed higher absolute price than others while the eastern one is expected to be a dark horse in terms of demand and pricing. The price in the southern markets rose 4-5 per cent QoQ in Q3 FY23 and in eastern markets the price rise was 7 per cent QoQ in Q3FY23. The prices in Northern and Western markets remained flat QoQ in Q3FY23 while the central markets saw a decline of 2 per cent QoQ in Q3FY23.


The sales volume in H1FY23 rose by 20 per cent to 12 million tonnes against 10 million tonnes in H1FY22. The revenue for H1FY23 was ₹6,273 crore, 21.2 per cent higher YoY. The EBITDA margin in H1FY23 came down to 16.2 per cent from 26.8 per cent in H1FY22. The company witnessed a major spike in power and fuel cost; the power and fuel cost per tonne in H1FY23 was ₹1,536.67, 49 per cent higher than H1FY22. The raw material cost per tonne also rose 19.8 per cent in H1FY23 to ₹717.5 against ₹599 in H1FY22. However, the realisation per tonne grew only 1.07 per cent in H1FY23 to ₹5,227.5 against ₹5,172 in H1FY22.

The fuel mix of Dalmia Bharat is 59 per cent petcoke, 14 per cent domestic coal and others. The company has a captive coal block to cater to its coal needs. As per an Emkay report, the price of domestic petcoke in Q2FY23 was close to ₹20,000 per tonne, which is now close to ₹18,000. However, the cost of imported petcoke, which was $200- $250 per tonne in June-July 2022 has now reduced to $170 per tonne. The price of Brent has also cooled from the level of $110 per barrel in July 2022 to $84.7 per barrel now. This correction in raw material prices is expected to offer some support to the ailing profitability of the industry.

Investment thesis

Dalmia Bharat is trading at a one-year forward PE of 32.7x against its 5-year average of 36.4x. The one-year forward EV/EBITDA of the company is 12x against the 5-year average of 9.2x. The replacement cost, i.e., EV per tonne, works out to ₹9,978, which is cheaper when compared to other major players. To some extent its cheaper valuations (EV/EBITDA) versus larger peers like Ultratech are justified, given better FY19-24 (5-year CAGR) growth estimated for Ultratech.

The overall prospects of the industry are good as the expectation is that the government will maintain its infra push. Once the cost inflation subsides, at cheaper valuations Dalmia Bharat can become a better bet. But for now, with risk-reward balance between its valuation and growth prospects, investors can hold the stock.

Current markets doing well
Positioned to tap opportunities
Support from Centre’s infra push