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Choice Institutional Equities has reaffirmed its 'Buy' rating on Dalmia Bharat, though it reduced the company's price target to INR 2,405. This adjustment reflects projected earnings downgrades for fiscal years 2027 and 2028, driven by significant pressures from rising input costs.
The company is preparing for potential cost increases of ₹125-150 per tonne in Q1FY27, largely due to higher expenses for packaging, logistics, and fuel. India Ratings has separately estimated that total cost increases could reach INR 175-200 per metric tonne in the first quarter of fiscal year 2027. Despite an estimated net cost escalation of ₹80 per tonne for the full fiscal year, Dalmia Bharat posted robust results for the quarter ending March 2026, reporting its highest quarterly net sales and operating profits. Its EBITDA margin also improved year-on-year to 21.25%, showcasing operational strength even as cost pressures mount.
Dalmia Bharat's stock is currently trading at a Price-to-Earnings multiple of approximately 31x. This valuation is notably lower than some of its larger competitors, such as UltraTech Cement, which trades around 43-47x, and Shree Cement, valued at 50-52x. ACC Ltd. shares trade at a P/E of 9-11x, while Ambuja Cements is at approximately 21.93x. The broader Indian cement sector is anticipated to experience strong growth in FY26, with operating profits projected to rise by 12-18%, fueled by infrastructure spending and housing demand.
Industry consolidation has theoretically improved pricing power across the cement sector. However, persistent input cost inflation, exacerbated by global events impacting fuel prices, continues to pressure margins. Analysts observe that price increases may lag cost inflation, posing a challenge for sustained profitability. Dalmia Bharat is also expanding its capacity, with a target of 75 million tonnes by FY28, aligning with industry growth but raising questions about potential oversupply if demand conditions change.
Digging deeper, Dalmia Bharat's EBITDA margin has trended downwards over the past three years, currently standing at 18.22%, below its five-year average of 22.06%. This historical compression suggests that regaining profitability will be challenging, particularly with projected cost increases. The company's earnings have also lagged the broader market's recovery. Furthermore, investors might consider the company's history of receiving orders under various tax acts, indicating potential ongoing regulatory scrutiny.
While the current performance is a positive indicator, analysts caution that the forward P/E of around 26x may not fully account for future margin pressures. The ability of Dalmia Bharat and its peers to translate demand into profitable growth will depend on managing volatile input costs and competitive pricing. Analysts will be closely watching future results for signs of successful cost pass-through and margin improvement.