Cement Stock To Buy That Can Fetch More Than 40% Returns

Broking firm Sharekhan has recommended buying the stock of cement player Dalmia Bharat for good returns. The brokerage sees an upside potential of more than 42% in the stock from the current levels of Rs 1607.

Buy for good returns in the long-term

Current market price	Target price	Gains %
Rs 1609	Rs 2300	42%

Dalmia Bharat is one of the top players in the cement industry in the country. According to Sharekhan the company is expected to benefit from improvement in cement demand and pricing environment especially in the Eastern region which had negatively affected performance during Q3FY2022.

"In Q4FY2022, the average cement prices in Eastern region rose by 10% both y-o-y and q-o-q, owing to steep price hikes undertaken during January (up 10% m-o-m) and February 2022 (up 11.6% m-o-m). Cement demand recovered during March 2022 with cement transported through rail rising by 22.8% m-o-m leading to overall 23.5% q-o-q rise in volumes for Q4FY2022. On the other hand, international and domestic pet coke prices were up 84% y-o-y (+3.4% q-o-q) and 35% y-o-y (-11% q-o-q) while retail diesel prices rose by 10.8% y-o-y (-2.7% q-o-q). We expect cement prices to inch up from April 2022 in the wake of increased power & fuel and freight costs," the brokerage has said.

Valuation and view on Dalmia Bharat

Sharekhan believes that the stock of Dalmia Bharat can attain a price target of Rs 2300. Dalmia Bharat has been affected by weak demand and pricing environment in Eastern region which has been addressed from the start of Q4FY2022.

"We expect it to see growth reverting in Q4FY2022 and sustain in FY2023 led by capacity additions and de-bottlenecking. Dalmia has corrected by over 20% over trailing two and half months and is currently trading at an EV/EBITDA of 9x its FY2024E earnings, which we believe is attractive, considering its strong earnings growth trajectory over the next three years. Hence, we retain Buy with an unchanged price target of Rs. 2,300," the brokerage has said.

Capacity expansion over the coming decade to capture industry growth

Dalmia in its FY2021 annual report highlighted its vision to become a pan-India pure play cement company with a capacity of 100 MT to 130 MT by 2031.

"It will expand its current capacity of 30.75 million tonnes to 36 million tonne by FY2022, 48.5 million tonne by FY2024 and targets the next goal to be ~60 million tonne. During this proposed leg of expansion from 48.5 million tonnes to 60 million tonnes, it hopes to enter the markets of central and northern India. The company will be expending around Rs. 9,000 crore till FY2024E," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.