Brokerage firm Jeffries has maintained a “buy” call on Dalmia Bharat with triggers in place for a strong growth in profits between FY23 and FY25. The brokerage has pegged the target price at Rs 2,940 and expects a 15 percent upside to the stock.
Dalmia Bharat is targeting to take its cement capacity to 47 million tonnes per annum by the end of the current financial year, which should power its volume growth.
Jefferies expect EBITDA CAGR to record 27 percent for FY23-25. EBITDA CAGR or compounded annual growth rate is the rate at which earnings before income, tax, depreciation, and amortisation grow annually.
Jefferies’ is positive on Dalmia Bharat as it expects growth in public infrastructure and housing, where cement is used as a raw material.
Demand for cement increased 11 percent year-on-year in the first ten months of FY23.
“The positive trend is expected to continue during the rest of the fiscal year, as it is a peak season for construction activity across all regions, said the company,” Jefferies said in a June 14 report.
The government’s focus on affordable housing has given rise to demand for low-cost housing, especially in Tier 2 and 3 cities, giving a boost to the cement industry.
With a growing economy and increasing urbanisation, demand for commercial buildings such as offices, malls, hotels, and hospitals has also surged.
The government also aims to construct 100 airports under the UDAN scheme and expand the railway corridor, which, too, will drive up cement demand.
The cement company’s Operating Profit Margin (OPM) declined by around 500 basis points in FY23 from the previous year. One basis point is one-hundredth of a percentage point. Net profit for the company declined 54 percent year-on-year to Rs 529 crore in FY23.
Coal is a raw material used in making cement and coal prices were up for quite some time, which affected the OPM margin and net profit of the company. Coal prices have now begun to fall.
At 11.20 am, the stock was trading 1.98 percent up at Rs 2,240 on the NSE.
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