Strong housing push for Dalmia Bharat

Strong housing push for Dalmia Bharat
16/05/2017 , by , in ALLIED

The stock of Tamil Nadu based cement manufacturer Dalmia Bharat has nearly trebled over the past 12 months to Rs 2,523. The trend is expected to sustain given the company’s strong presence in the southern and the eastern regions where cement demand is stronger than the rest of the country, and its focus on cutting down debt and interest expenses.

With a total capacity of 25 million tonnes, the company derives 39 per cent of its total sales from the southern region and 47 per cent from the eastern region.

Cement demand is upbeat in these regions, which led to the company’s sales volume rising by 17 per cent year-on-year in the March 2017 quarter compared with 1.3 per cent drop in the total sales volumes for the cement sector across the country .

Over the past four quarters, the company’s volume growth was better than that of the industry.

In the South, cement demand is likely to be better than rest of India due to the launch of irrigation projects by state governments of Telangana and Andhra Pradesh and other construction activities.

The low-cost housing segment, accounting for 20 per cent growth in cement consumption during the March quarter, is also a key demand booster in the southern and eastern regions.

Sales volumes in the southern and eastern regions is expected to be close to 8 per cent in FY18 compared with an expectation of 4-6 per cent growth pan-India. This should help Dalmia Bharat to sustain the momentum.

By the end of September 2017, the company is expected to complete its corporate restructuring by amalgamating its subsidiary OCL India, which operates in the eastern region. This is expected to make the consolidated operations leaner and save on tax expenses.

As demand improves, the company’s cashflows from operations are also expected to improve.

This can be used in reducing its debt since the company does not have fresh expansion plans.

The company’s operations are cost efficient. Besides maintaining a lead distance (the distance from the plant to market) within 300 km, it also has high cement to clinker ratio (more than 1.7) and lower cost of power production.This has helped in boosting earnings in the past four quarters.

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