Dalmia Bharat: Jaiprakash Associates bid, IEX monetisation key monitorables

Emkay Global on Thursday assumed coverage on Dalmia Bharat with 'ADD' rating, with a target price of Rs 2,300 apiece. The target valued the cement stock at September 2027 EV/Ebitda of 11 times. 

The domestic brokerage said Dalmia Bharat is among the five bidders to have submitted its resolution plans to acquire Jaiprakash Associates' assets, which include real estate, power, hospitality, etc, besides cement. As per its recent interaction with the company, the cement maker would divest the non-core assets and retain the cement assets only, if it wins the bid. 

In December 2022, Dalmia entered a binding agreement to acquire Jaiprakash Associates' 6.7/9.4mtpa clinker/cement assets, respectively, for Rs 5,700 crore. Given that the assets are to be acquired through competitive bidding, we expect the acquisition cost to be higher than Rs 5,700 crore, it said.

"Our capex estimates do not account for JAL’s capacity; this will remain a key monitorable in the short term," Emkay Global said."Dalmia has delivered stellar, 25 per cent, returns in the past three months and is trading at 12x 1-year forward EV/Ebitda, which is slightly above the long term-mean. We believe the Street will now look at 1) Dalmia’s organic capacity expansion plans and subsequent ramp-ups, 2) the outcome of its bid on Jaiprakash Associates’ (JAL) assets, and 3) implementation of cost-rationalization steps (Rs150-200/ton by FY27),"

Also, eyes would also be on the pricing robustness in the South and East India, which could provide further momentum to the stock, in our opinion. 

Emkay Global is awaiting clarity on Dalmia’s roadmap toward 75mtpa (including JAL bid) and its impact on balance sheet/return ratios before ascribing a higher valuation multiple. 

"We estimate Dalmia’s FY26E, FY27E, and FY28E Ebitda/tonne at Rs 1,050, Rs 1,135, and Rs 1,240, respectively," it said.  

Emkay sees Dalmia’s capex cash outflows at Rs 9000 crore over FY26E-28E. It believes the company would fund its capex requirements primarily through internal accruals (operating cash flows of Rs 8,850 crore over FY26E-28E.

"We also expect Dalmia to partly monetize its stake in Indian Energy exchange (IEX) to fund the balance capex requirements. Overall, we see net debt to Ebitda rise to 0.63x (from 0.3x in FY25) in FY26E, before falling to 0.53x and 0.3x in FY27E and FY28E, respectively," it said.