In its research report dated September 28, 2023, Emkay Global Financial has recommended a “hold” rating on Dalmia Bharat, with a target price of Rs 2525.
Dalmia Bharat is expected to benefit from significant price increases in the range of approximately Rs 45-50 per bag in the Eastern region in September 2023. Additionally, the Southern region has announced price hikes of Rs 70-80 per bag, effective from October 2023. These regions collectively contribute more than 80% of the company’s volume. The absorption and sustainability of these price hikes will be closely monitored as a key factor.
Dalmia Bharat has ambitious plans to expand its capacity to 75 million tonnes by FY27 and further to 110-130 million tonnes by FY31, representing a Compound Annual Growth Rate (CAGR) of approximately 15%. Importantly, the company intends to fund around 80% of the upcoming capital expenditure using internal accruals between FY23 and FY26, maintaining a comfortable balance sheet with a net debt-to-EBITDA ratio of under 1.5x.
In light of the higher realizations, Emkay Global Financial has increased its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) estimates for FY24-26 by 6-9%. To reflect the improved growth prospects and strong balance sheet of the company, they have adjusted the target Enterprise Value-to-EBITDA (EV/EBITDA) multiple upward by one notch to 12x (previously 11x). As a result, the target price for September 2024 has been revised to Rs 2525 per share, following the quarterly roll-over, while maintaining a “HOLD” recommendation.
Investors considering Dalmia Bharat as an investment option may find Emkay Global Financial’s recommendation and target price valuable factors to consider as they make their investment decisions.