Improvement in cement demand, pricing environment may help Dalmia Bharat clock 44% return in one year: Sharekhan

Improvement in cement demand and pricing environment, especially in the Eastern region which had negatively affected performance of the sector during Q3FY2022, is likely to help Dalmia Bharat, says brokerage firm Sharekhan.  

"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," said the brokerage

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Stating headwinds are easing and valuation of the stock has become attractive after recent corrections, the brokerage suggested buying this cement stock. 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, it says.  

Strong demand recovery 

March saw strong demand recovery whereas exit rate was at all time high level which indicates resilience of demand in adverse scenario, says brokerage house B&K Securities.  

"The rising prices of almost all construction materials as well expected further hikes in cement price may lead to some postponement of consumption in near-term. However, we are structurally positive on cement demand considering upcycle in housing sector and government’s thrust on infrastructure," it said, adding though near-term outlook remains volatile we remain structurally positive on the sector given the promising demand outlook from real estate, infrastructure sectors.

Dalmia Bharat target price

Sharekhan maintained buy rating on Dalmia Bharat with a target price of Rs 2300, which translates into an upside of 44% on April 6 closing price of the stock of Rs 1595.05 a share on the BSE. Technical data of the scrip shows that the cement stock has given a flat return of 2% in the past one year, as on April 7.  

Dalmia has corrected by over 20%, 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 (PT) of Rs. 2,300," said Sharekhan.  

Key challenges  
Any pressure on cement demand and cement prices can affect financial performance. Macroeconomic challenges leading to lower government spending on infrastructure and housing sectors can also affect performance of this sector.