Dalmia Bharat Limited (DALBHARAT) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the earnings conference call of Dalmia Bharat Limited for the quarter ended 30th September 2026. [Operator Instructions] Please note that this conference is being recorded, and the transcript will be put up on the website of the company. [Operator Instructions] Before I hand over the conference to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements. These statements are based on expectations and projections and may involve a number of risks and uncertainties such that the actual outcome may differ materially from those suggested by such statements. Today, on the call, we have with us Mr. Puneet Dalmia, Managing Director and CEO, Dalmia Bharat Limited; Mr. Yatin Malhotra, CFO, Dalmia Bharat Limited; and other senior management of the company. I would now like to hand the conference call over to Mr. Prassan Goyal, Head of Investor Relations, Dalmia Bharat Limited. Thank you, and over to you, Mr. Goyal.

Thank you, Nirav. Good evening, everyone, and thank you for joining us today. I hope you had an opportunity to look at our financial results and presentation we have uploaded. Let me now hand over the call to Mr. Dalmia for his opening remarks. Thank you, and over to you, sir.

Thank you, Prasan. It is good to be back with all of you as we discuss our Q2 results. I would begin by talking about the headlines shaping the world around us. The Russia-Ukraine war, the Gulf crisis, tariffs, financial and bond markets and El Nino, the world is going through multiple uncertainties. It seems that it has become the new normal, something we all have to live with day in and day out. I'm happy to see how India is navigating through these geopolitical challenges remarkably well with its fundamentals intact and strengthening. The country has demonstrated resilience in absorbing unprecedented external shocks while staying firmly on its growth path. The Q1 GDP was a case in point where the economy grew at 7.8%. Fiscal and policy measures, including sustained public spending and efforts to absorb the impact of rising fuel prices have helped cushion domestic economic activity and consumer sentiment from external shocks. We can see this reflected in a range of indicators. The RBI revised its financial year '27 GDP growth estimate upwards to 7.1%. GST collections remain close to record levels, while manufacturing output continues to show strong growth. Cement demand has also remained robust, growing in high single digit on a Y-o-Y basis during this quarter. This was supported by continued government CapEx spending, along with relatively low rainfall in several parts of the country. In the first 5 months of the year, the central government has spent around 42% of its budgeted annual CapEx. The ministries of road transport and highways and railways had also utilized around 45% of their respective annual budget outlays during this period, providing a meaningful impetus to cement demand. Having said that, rising inflation and potential onset of rate hike cycle pose near-term risks. But I believe India's growth story is much bigger than the near-term challenges we see today. The country is strengthening, growing and aspiring. Just like India. We at Dalmia are also building a stronger and sustainable organization for the future. And despite near-term challenges, we remain firmly focused on executing our strategic priorities across the board. I'm happy to mention that we have recently like our new clinker line at Belong and commenced trial runs ahead of schedule. This additional capacity SP1 Will help us deepen our presence in our stronger markets of Karnataka and Maharashtra. As I couldn't think of a better time to bring this capacity online, we look to commence commercial production ahead of the peak demand season in Q4. Our expectations at Pune and Kadapa are also progressing as planned and are expected to come during financial year '28, taking our total capacity to around 67 million tonnes. The Central India story is another exciting one, which is unfolding. Based on our initial integration experience, the assets are in good shape. And our teams are working relentlessly to restart operations and ramp up production as quickly as possible. At Reva, we have restarted mining operations while both the clinker line and the cement mill are steadily ramping up under trial runs. While Q2 saw some initial teething issues as we continue to build our network and stabilize land operations, I'm confident that we are on track to achieve a 35% to 40% utilization of these assets by end of financial year '27. Another area I would like to touch upon is our sales strategy. While East and Northeast markets remained subdued during the quarter due to severe floods and heavy rainfall, we saw a healthy momentum in both South and West markets with growing -- with growth approaching double digits. Our focus on strengthening our brand position remains equally strong. Premium product share continues to increase, and we expect this trend to deepen over coming quarters as we continue to drive this initiative of premiumization. Our recently launched premium offering, Whether 365, has received an exceptional response from the market, prompting us to accelerate its rollout into newer markets. Let me briefly touch upon the current operating scenario. Elevated crude oil prices and rising input costs have been testing the resilience of the entire industry. With crude prices remaining above $100 a barrel and maritime disruptions continuing, international petcock prices has surged to about over $180 per ton. Against this backdrop, I believe we have managed the impact reasonably well through fuel mix optimization, better planning and several other initiatives. In the first half of the year, we have seen a related impact of around INR 220 per tonne on variable cost with additional pressures from key input materials such as packing bags, adding another INR 100 per tonne. While pricing in Q1 helped us absorb some of these cost pressures the environment was relatively challenging in Q2 in a few key markets. Prices remained steady in South and West, while East pricing was under pressure amid subdued demand. That said, we are now beginning to see a more encouraging price trend. Both September and October have seen healthy price increases, helping us recover a part of the cost inflation. We are hopeful that the positive momentum will continue going forward. While these industry cycles may come and go, our long-term strategic priority remains firmly anchored, maximizing returns from existing assets, expanding in a calibrated manner to become a pan-India player, while maintaining a strong and healthy balance sheet. And underpinning all of this is our continued investment in our people, processes and organizational culture. As we continue to march forward to chase our vision, one of my key priorities is to build a future-ready organization with strong leadership team and deep capabilities. In that spirit, in a planned transition, effective first January 2027, Navin Tiwari, our Chief Marketing Officer, will transition as a key adviser to me on strategic initiatives and projects. Over the past year, he has helped deepen our engagement with channel partners, sharpen our market positioning and strengthened our sales capabilities, thereby strengthening the foundation for the company. As a part of this transition, Yatin Malhotra, our CFO, will take additional responsibility for sales and marketing, along with his existing responsibility for the finance function. Yatim joined Dalmia Bharat Group in March last year. and has led various enterprise-level initiatives since then. I'm confident that his familiarity with Dalmia way of working and a C-level experience over the last 11 years across various consumer-facing organizations provide the right combination of business strategy and financial management. I wish him well as he takes on this additional responsibility. Our focus remains clear: strengthen our brand positioning, deepen our market reach and further build our sales capabilities to generate strong returns for our shareholders and support the next phase of growth. I'm confident that these changes will bode well for us as we look forward. Thank you, and over to you, Yatin, for the financial updates.

Thank you, Puneetji, and good evening, everyone. Building on to Puneetji's comments, India witnessed healthy demand trends during the quarter, supported by strong public spending and resilient consumption. Below normal rainfall in several parts of the country also allowed construction activity to continue for longer, providing further support for cement demand. We benefited from these trends in our South and West market. On the other hand, East and Northeast were considerably weaker, impacted by heavy rainfall. Having said that, we are now seeing demand picking up well across these regions also. In line with the regional trends, our volumes grew 4% Y-o-Y during this quarter on an ex central basis. Overall volumes rose 3% to 7.1 million tonnes in the quarter. I would also like to highlight the progress we are making in strengthening Dalmia's brand in the market. We have deepened our engagement with channel partners and refresh how our brand shows up in the marketplace with a new look across our holdings, packing backs and other brand touch points. As part of this journey, we have also taken another important step, Konark, which has been a cornerstone of our portfolio and a trusted brand for decades is now getting phased out as we sharpen our focus on premiumization. This marks an important milestone towards reinforcing our brand positioning and building a stronger, more unified Dalmia brand. Let me now turn to our quarterly performance. Since our Central India operations are still at a nascent stage, I will take you through our performance, excluding the central markets. Prices remained largely stable across regions unlike the usual moderation that we see in quarter 2. However, East witnessed some price corrections amid subdued demand reflected in roughly 1% Q-o-Q decline in realization. Incentives during the quarter declined to INR 25 crores with relatively low production at plants where incentives accrued. However, we expect this to normalize as demand picks up. Collections during the quarter remained healthy at INR 53 crores. We are already seeing cement prices inching up steadily with prices in the south and east currently around INR 15 per bag higher than Q2 average. This should provide some support in offsetting the rising cost pressures. Moving to costs. Our total cost in the quarter increased by roughly INR 260 a tonne on an ex central basis. Let me take you through the key factors driving this increase. Variable costs increased by around INR 200 per tonne. Higher fuel costs alone contributed around INR 100 per tonne, while inflation in key raw materials added another INR 30 to INR 40. During the quarter, we also saw a meaningful change in the retail mix with lower volumes in East, resulting in an additional adverse impact of INR 50 to INR 60 per tonne. With external cost pressures persisting and pet coke prices remaining above $180 per ton, we expect a further cost impact of around INR 75 per tonne in quarter 3. However, at the same time, the adverse mix impact seen in quarter 2 should get reversed as the regional mix normalizes. I would also like to highlight 1 additional point. As you are aware, following the recent amendments to the MMDR Act, the mineral bear in land tax is no longer applicable with effect from August 22. These payments have been discontinued in Assam and [indiscernible] from that date while they continue to apply in Tamil Nadu. We are engaging with the relevant authorities to facilitate its discontinuation. Until then, the impact of this tax continues to be reflected in our raw material cost. Separately, the amendment to the MMDR Act has also resulted in a significant reduction in the contingent liabilities by roughly INR 198 crores, and the liabilities now stand at INR 931 crores. Consequently, contingent liabilities as a percentage of the net worth have declined to almost 5%, which is among the lowest in the industry. This reflects our continued focus on strengthening governance and proactively managing potential liabilities. Renewable energy remains an important pillar of our cost efficiency initiatives, and we are making strong progress on this front. Over the last 5 years, we have scaled our RE capacity from 63 megawatts to roughly 450 megawatts today, significantly increasing the RE share to 52% in quarter 2. Going forward, we will continue to accelerate this transition with more RE capacity getting online over the next few quarters. In line with this transition, we have impaired around 97 megawatts of thermal power capacity this quarter where operations have been discontinued. This has been done in 3 of our existing plants, which do not include the central plant. Logistics is another area where we continue to innovate and find efficiencies. Despite the impact from diesel price increase of about INR 20 per tonne in this quarter, our cement freight cost has remained largely flat. Clinker freight has also declined, led by efficiency and retail mix change. Coming to fixed costs, comprising of employee cost and other expenses, the increase was about INR 168 per ton. Of this, approximately INR 140 per tonne was attributable to under absorption of fixed costs due to Q-o-Q decline in volumes, while the remaining increase was largely driven by higher shutdown costs during the quarter. As volumes recover, underabsorption should normalize over the coming quarters. Putting it all together, the decline in realization by about INR 49 per tonne, combined with cost increases of approximately INR 259 per tonne on an ex central basis resulted in an EBITDA per ton declining to INR 746. On a reported basis, EBITDA per tonne stood at INR 698, reflecting a dilution of roughly INR 50 per tonne due to central plants. We expect this dilution to increase to about INR 100 to INR 125 per tonne in quarter 3 as Reva commences commercial production before it progressively reduces a central operations scale up. During the quarter, we reported exceptional items aggregating INR 339 crores. I've already spoken about the transition from the Konark brand and the impairment of captive power plants. In addition to this, we have implemented a separation scheme for eligible employees at few units, resulting in a onetime provisional charge of INR 57 crores. Briefly touching upon our ongoing projects, we are making good progress on our expansion plans. The trial run at Belgaum's clinker line were initiated ahead of side. Three MTP cement mill is also expected to be -- to go and trial in the next couple of weeks. Both Pune and Kadapa also progressing as planned. During the quarter, our organic CapEx stood at INR 909 crores, taking H1 spend to roughly INR 1,420 crores. CapEx guidance for the full year remains unchanged at INR 3,200 crores to INR 3,400-odd crores. At the end, I would say that we firmly believe that financial discipline gives us the resilience and the flexibility to navigate challenging times. As Puneetji mentioned, maintaining a healthy balance sheet remains central to our strategy, one our foremost priorities. Guided by this, we remain committed to maintaining leverage below 2x on a sustainable basis, which will create a strong financial foundation for the Dalmia's next phase of growth. With that, I would want to thank you. And now we can open the floor for questions and answers. Thank you.

[Operator Instructions] First question is from the line of Prateek Kumar from Jefferies India.

Am I audible?

Yes, go ahead, you are audible.

First question is, while you elaborate discussion on various line items in terms of our EBITDA per ton performance in the quarter. Excluding the Central India's performance also in this quarter, performance of our company looks weaker than all 4 other companies which have reported results, including your regional peers as well on all volume growth, pricing growth, and EBITDA per tonne. So are we like kind of -- and we have seen this in the past also the volatility in your performance is higher than some of your peers. Does this reflect -- would you reflect positively on the second half performance versus like, let's say, in 2Q performance?

Thank you, Prateek. I think I explained quite a bit in my commentary. And let us -- we'll have to break this into pieces. There is one reality is the reality of demand in East and Northeast. That has actually led to, I would say, a relatively lesser growth for us. And if you were to dissect the cost side, if you -- the fixed cost adoption per se because of, I would say, relatively lesser growth has given a hit of roughly INR 100 to INR 120 a tonne. So structurally, if we were to see, I think there is nothing which would worry us too much. I think we are pretty much in line with the industry in terms of the cost impact across line items. I think this -- the regional seasonality impact Leading to a fist causes option impact is the only story of our financials, which I'm sure that we should be able to get back on track very soon when the demand rebounds. So that's the way we see it. So I think that this is -- yes, we would have been happier with a little more growth, but I think we look forward to a much better H2. And we have all the strategy playing out well for us. So we are hopeful that we will have a much stronger H2 in front of us.

And other question is on your fuel cost. You mentioned about another INR 75, INR 80 of fuel cost impact which you see for third quarter. Based on [indiscernible] fuel, is this the peak impact which you're looking for the company? Or is this something which you kind of effective January and then another round of inflation can hit the business?

Actually, it's a very difficult thing to guess. At the end of quarter 1, we thought we had already seen the peak and now we are looking at a different peak. So we are taking it as it comes. Right now, basis whatever bookings and whatever foresight we have into this topic, you're looking at roughly [ $75 ] to [ $80 ] in quarter 3. And I would rather not hazard a guess on quarter 4 right now. Let us see how things evolve.

Next question is from the line of Amit Murarka from Axis Capital.

So Just the first question is on the. Sir, if I got it right, did you mention like there will be a INR 125 per tonne realization dilution in Q3 because of the ramp-up in Central India?

Yes. So I mentioned that the EBITDA dilution in quarter 3 would be in the range of INR 100 to INR 125 a tonne. In quarter 2, we saw an impact of roughly INR 50 a tonne. In my last call, I mentioned that we are targeting to be near to breakeven in central assets by end of FY '27. And we are aspiring to reach Dalmia's standard level EBITDA by end of FY '28. So we are chasing those 2 big goals. And in the interim, we might see some dilution. It was INR 50 in the last quarter and roughly INR 100 to INR 125 in the coming quarter, the one that we are living right now.

Okay. I'm just wondering, like over the 10125 dilution is at the company level, you said, right, the pricing dilution? so we see the pricing...

Sorry, EBITDA. I'm saying EBITDA dilution not the [indiscernible] dilution.

Okay. Okay. Okay. EBITDA dilution. And could you then also like roughly give some breakup of the numbers, possibly also like what -- how much would be the realization kind of gap between your Eastern markets and your central foray and what is really the strategy to ramp up these assets? Like, will it be in trade or nontrade?

We have a capacity of 5.2 million tonnes, and I think we have enough and more spaces to expand across all segments. So the bigger picture of the central assets is that it is the right strategic fit. We have run these sites. We have run these markets. We have been present in these markets. So I think we will have to go all guns blazing. We have to solve everything that has to be solved, both on the manufacturing side, logistics side and the sales side. So I will not pick and choose any one point as this is the most critical one. I think all of them put together will give us the results.

Okay. Okay. Sure. And like fair to say that in second half of FY '27, possibly the central assets will make maybe INR 300 -- INR 200, INR 300 EBITDA per ton loss. I mean, given that is the impact of maybe by 5%, 6% of the volume in Central in the second half?

I would not give an exact number. As I said, I will continue with the same story. We're targeting to breakeven in Q4 of this financial year. So let us see where we can take it.

So the entire CapEx will get commercialized in Q3. I mean the INR 2,850 crores that you paid as well as the INR 300 crores for refurbishment and all? Or will it be staggered?

What we have paid should get commercialized when for the balance CapEx is as and when those projects get completed, we'll capitalizing them.

Next question is from the line of Indrajit Agarwal from CLS India.

A couple of questions. First, on the organic business. you mentioned INR 75 crore, INR 80 fuel cost impact and assuming the entire operating leverage or under absorption of fixed cost reverses, then on organic cash costs should go down by INR 70, INR 80 per tonne in for third quarter. Is that understanding correct, plus with the benefit of pricing increase.

Yes, that's pretty much right.

All right. And the impact of the Central India asset will be on an overall basis, INR 50 plus INR 120 million, right? That is INR 180 total.

Total. So INR 50 will become INR 120. So overall impact is roughly INR 120, INR 125.

And at what utilization level does that breakeven? So does that 40% utilization that you aspire to achieve does it break even in that level?

I would not go into that detail of that Excel sheet, but I think let us target breakeven. And I think closer to the date, we can inform you more about the utilization.

Sure. And fair to assume in 2Q, you wouldn't have sold anything from nay, right? How much would have been the volume, anything meaningful to change the 3% growth number?

I think Q2 had various sort of things happening. We are very heavy monsoons in that part, floods, there was a plant that was sort of getting their act together, the markets which we are nurturing and we are developing the network. So I would not read too much into Q2. I can tell you that, again, we have been in these markets for the last 2, 2.5 years, we have never vacated. So we have an active network that we can always bank on and we are developing that further. So -- and as you would know, when you capitalize certain things because commercial production is still not done. A part of this volume is actually not reported as volume, they're actually put as a part of the -- in terms of fixed sites actually. So I think let's have Q3 numbers, and then we can talk about in terms of growth and volume. That's the way I would put it.

Sure. And any further impairment we can expect? Or is it all done in terms of exceptional?

So I don't think there is any other impairment out, but we will see this is a regular assessment that we keep doing about our assets. As we -- the things that were obvious to us in the previous quarter. So there is nothing more that is lined up as of now.

[Operator Instructions] Next question is from the line of Rahul Gupta from Morgan Stanley.

Two questions. One on the JV assets. You talked about a dilution could expand to INR 100 crores to INR 125 per tonne in the next quarter. Now that you have a fair assessment of the assets, can you also help us understand what kind of costs are we looking at to restart these assets? That's my question number one.

When you say cost, what exactly are you alluding to?

All costs associated to restart the assets?

So we have to run the plant. We have fixed costs to take care of. We have got variable costs. As I said, earlier, there's a lot of efficiency CapEx has been done. So the cost curve right now is high because we have the legacy costs to take care and the volumes are still lead to come. But I think that's a part of the entire business model. So current cost is not a reflection of where we are heading. So once we stabilize this and reach quarter 4, I think we'll have much more clarity on these numbers, and then we can might be share it with you. We'll see.

Got it. My next question is on your volume guidance for second half. Now you did value to the fact that East and Northeast struggled because of unseasonal weather conditions. So once these weather conditions improve once we are in the seasonally good demand period, at the same time, your volumes ramp up from the central assets. So how should we look at the second half volumes from here on?

I think we should look at second half volume growth in line with the industry. I would just put it at that. I think we have maintained that position internally, which is we are trying to chase aggressive targets. But for you to pick a number, let's take industry growth is the number that we are chasing.

So that's for the organic business, right?

Yes.

Next question is from line of [indiscernible] Jain from Ambit Capital.

The first question on the MMDR. Just wanted to understand, I think you mentioned that Tamil Nadu still accruing those charges and not in some other states. What's going on? Maybe can you allude to what's going on in Tamil Nadu especially?

Tamil Nadu, the government has still not made the changes in the process and the portals that we have to. So we are still supposed to pay the sales before we take out the limestone. So I think that is a discussion which is actively being pursued with the government. And right now, we were expecting this cost to go away. It has not gone away yet. And let us see how this happens I can just tell you that we are working with the government to make sure that this -- we can get the benefit of this change.

Okay. Second question, Puneet, just wanted to understand on the leadership transition you mentioned specifically the finance and marketing functions rolled into one, what's the intent there? Is this -- and this is a long-term solution you're looking at? And what's the intent here at this transition?

No. As I said in my remarks, this is a planned transition, and we have immensely benefited from Navin's extensive knowledge and expertise, particularly from multi-industry distribution practices organization and team structuring, channel engagement and premiumization. And he has played a very significant role in strengthening our capabilities and approach. I think currently, we wanted somebody who understands the Dalmia way of working and who understands business and finance to take this role. But over time, I think we want Yatim to be more focused on operations, and we will eventually get somebody to be the CFO of the company. So -- but right now, for a temporary period, I think he will continue to oversee both functions.

Okay. Just 1 quick question, if I may, on the Jaypee assets. You operated these assets in the past. Now that you've come back and the market structure, also some companies have added capacity. Are you -- what changes are you seeing in the marketplace or your understanding of the asset? Is it more or less similar in terms of operation and market structure as you build out your distribution there?

I think we have got no surprises. I think we knew the asset quite well. It is just that, as we said right in the beginning, this is a multiyear bet, and we have been trying to get into the central region for quite some time. We are very excited with the next 5- to 10-year demand prospects in this region. -- this -- both MP and UP have almost 25% of India's population living here. And I think there are going to be huge investments here. The [indiscernible] beta river linking project is almost INR 40,000 crores plus the Noida airport and the build-out of the industrial corridor there is going to be huge just huge population as they become more prosperous and there'll be much more building of houses and rural demand as well. So we are very excited about this region. We have huge infrastructure, which Jaypee had built up. There are railway sidings, they are captive power plant. There is sufficient land. As I said, we have our own mining lease next to this. So once we ramp this up and bring it down to Dalmia's cost curve, there's an opportunity to do brownfield expansion here as we are doing in Belgaum and Kadapa. So this is a very strategic asset and it takes time to bring it down to the Dalmia cost curve, which we are making investments for. And also, it is going to take some time to ramp up, so which we've guided you already. So I think we are very happy that at least we got and it takes 4 to 5 years to build a new greenfield plant, acquire land, et cetera. It has really accelerated our entry into this region and it is one more step to becoming a pan-India player. So we like this market. It's strategically attractive. It is a good fit into our strategy. And yes, in the short term, we have to execute well in terms of making additional investments to bring costs down and also building our brand and strengthening our brand and distribution in this region. So I don't think any major surprises.

[Operator Instructions] Next question is from the line of Navin Sahadeo from ICICI Securities.

Am I audible?

Yes.

. So 2 questions. One is on the leadership change that you mentioned. So effectively, Mr. Navin Tiwari resins and then becomes an adviser to you. Is that the way 1 should look at it?

I don't know. I mean, what that means I think..

I'm [indiscernible] understand. I'm sorry, I'm sorry to cut you. But I was only trying to see that from being completely hands-on to the role of sales marketing and logistics. I'm just looking at your Slide 36. He becomes adviser. So not involved in day-to-day operations. Is that understanding correct?

Yes. That is correct. And I don't -- I will not say it like -- I would say he will be more involved in continuing to provide the continuity in the strategic footprint that blueprint that he has created in terms of how to build distribution, how to create channel engagement, et cetera. And I will take his guidance wherever I feel. He is a valued valued member of our team. And I think he will -- this is a plan transient, as I told you, right from the very beginning, we had thought through it like this only. So I think he provides a strong platform and continuity to build that platform. Navin is an internal -- Yatim is an internal person. He knows business, he knows -- he's been involved in some of these initiatives very well. So I think we get continuity of an internal person to further build on what Navin has created while continuing to get Navin's guidance as we go forward.

Okay. My second question then was just a clarification to the impact from Jaypee, which Yatinji mentioned. So when you say impact of INR 50 per tonne that we have seen in this quarter, so the simple [indiscernible] is INR 35 crore impact. That's what you're talking about because when you say INR 100 to INR 120 impact in coming quarters, how sold one -- I'm just trying to understand [indiscernible] if you can provide any clarification?

Sorry, you're talking about quarter 2 or quarter 3?

That's my worry. Because when you say impact of INR 50 in quarter 2 is on a volume, which is slightly lower, Q3, of course, you will do a much better volume in [indiscernible]. So I'm just trying to understand how should one look at it from a impact perspective?

I think the -- in quarter 3, we will have higher volumes, you're right, but we'll have higher volumes, both on central side and on central side. But the biggest point is that in quarter 2, we still have a lot of costs that are getting capitalized because we are still under trial runs for the plant. So Q3 will have a full fledged cost impact once we come -- when we go for the commercial production and capitalize the plant hence the impact in quarter 3 is higher. So that's the reason of the EUR 100 million to 125 million outlook.

Next question is from line of Ritesh Shah from Investec India.