Geojit Financial Services has reaffirmed its BUY rating for Dalmia Bharat Ltd (DBL), setting a target price of Rs 2,080, representing a 15% upside potential from its current market price of Rs 1,807. Despite a challenging Q2FY25, marked by a 2% YoY decline in revenue and a 26% drop in EBITDA, the cement giant's long-term growth prospects remain robust. The company plans to reduce costs by Rs 150-200 per tonne through strategic initiatives and aims to increase its cement production capacity to 110-130 million tonnes per annum (mtpa) by FY31. A recovery in cement demand and pricing is anticipated in H2FY25, driven by government infrastructure projects and a resurgent real estate sector.

Q2FY25: A Quarter of Challenges

1. Revenue and Volume Trends:

Revenue declined 2% YoY, despite an 8% increase in cement volumes.
A 9% YoY drop in realisation per tonne due to weak demand, monsoons, and higher non-trade sales mix impacted overall revenue.
2. EBITDA and Margins:

EBITDA fell 26% YoY, with margins contracting 460 basis points (bps) to 14.1%.
Higher freight and operational expenses, including increased plant shutdowns, contributed to the decline.
3. EBITDA Per Tonne:

EBITDA per tonne dropped by 32% YoY to Rs 648, far from the company's long-term guidance of Rs 1,100–1,200 per tonne.

Cost Optimization and Strategic Goals

1. Cost Reduction Initiatives:
Dalmia Bharat aims to cut costs by Rs 150–200 per tonne over the next three years through:

Enhanced use of renewable power.
Increased reliance on captive coal mines.
Optimized logistics and freight costs.
2. Capacity Expansion Delayed:

The acquisition of JP assets (9.4 mtpa) has been stalled due to insolvency proceedings, delaying the medium-term capacity target of 75 mtpa to FY28.
Long-term capacity ambitions remain intact, with plans to achieve 110–130 mtpa by FY31.

Industry Outlook for H2FY25

1. Cement Demand Recovery:

Industry-wide cement demand is expected to grow by 8% YoY in H2FY25, bolstered by:
Government infrastructure spending.
A strong real estate cycle.
Private capital expenditure gaining momentum.
2. Pricing Stabilization:

Cement prices are projected to recover in H2FY25, supporting margin improvement.
3. Government Initiatives:

Infrastructure spending has lagged in H1FY25, with only 27% of the budget utilized, compared to 39% in the previous year. A pickup in expenditure is anticipated in the second half.

Valuation and Target Price

1. Valuation Metrics:

DBL currently trades at a 1-year forward EV/EBITDA of ~12x, in line with its historical 2-year average.
The stock has underperformed, delivering a 15.3% negative return over the past year, but recent corrections present a buying opportunity.
2. Target Price:

Geojit values DBL at 12x September 2026E EV/EBITDA, arriving at a target price of Rs 2,080.
3. Investment Rationale:

Positive demand outlook, pricing recovery, and cost optimization initiatives justify the BUY rating.

Technical Analysis: Support and Resistance Levels

1. Current Trading Levels:

CMP: Rs 1,807
52-Week High: Rs 2,429
52-Week Low: Rs 1,664
2. Fibonacci Levels:
Using Fibonacci retracement from its 52-week high to low:

23.6% Level: Rs 1,868 (Immediate Resistance)
38.2% Level: Rs 1,950 (Major Resistance)
50% Level: Rs 2,047 (Key Target Level)
61.8% Level: Rs 2,144 (Upside Potential if Momentum Sustains)
3. Support and Resistance Zones:

Immediate Support: Rs 1,750
Major Support: Rs 1,664 (52-week low)
Resistance Zone: Rs 1,950–2,080

Actionable Insights for Investors

1. Short-Term Trading Strategy:

Entry Range: Rs 1,750–1,800
Target: Rs 1,950
Stop Loss: Rs 1,740
2. Long-Term Investment Strategy:

Hold for a target price of Rs 2,080, with potential upside as demand and pricing recover.
3. Diversification Recommendation:
Combine DBL with peers such as UltraTech Cement and Shree Cement to capitalize on the sector’s recovery momentum.

Conclusion

Dalmia Bharat Ltd remains a formidable player in the Indian cement industry, supported by robust capacity expansion plans and cost optimization strategies. While Q2FY25 posed challenges, the company’s long-term prospects, aided by infrastructure growth and pricing recovery, offer a compelling investment case. With a target price of Rs 2,080, DBL presents an opportunity for both short-term traders and long-term investors to benefit from India’s infrastructure boom. Monitor support and resistance levels closely to maximize returns.