We see cement sector doing well during this month: Ronald Siyoni

"Overall the company’s balance sheet is strong enough on a debt to equity or net debt to EBITDA at 0.04x and 0.32x as on quarter two FY23. So there is enough room for this acquisition to get absorbed easily, "says Ronald Siyoni, Sharekhan.

This year has been big one for the cement pack. We have seen a lot of consolidation with the Adani Group flexing its muscles. We are ending the year now with Dalmia Bharat buying these assets of JP. How big is this deal going to be for Dalmia Bharat, what changes for it, it is EPS accretive?
The big deal announcement by Dalmia Bharat has been attractively valued at $73 per tonne which is much below the replacement cost of dollar 120 per tonne. So the acquisition is attractively valued.

Also, this deal will give them a footprint or a foothold in a centre region with a 10% capacity share. Normally Dalmia Bharat has a leadership position in eastern region with presence in south. Going ahead you can also expect expansion in the central region by the company. Overall the company’s balance sheet is strong enough on a debt to equity or net debt to EBITDA at 0.04x and 0.32x as on quarter two FY23. So there is enough room for this acquisition to get absorbed easily.

If we see for Dalmia Bharat the stock has already re-rated on the valuation front with EV to EBITDA multiple trading at 12.5 times and 11.4 times its FY25 and FY26 earnings which is much higher than its historical averages and at nearly par to UltraTech’s valuation. So the company has been a strong contender and overall if we see now we have a buy rating on Dalmia Bharat with the price target of 2250. Now overall for the sector if we see there are couple of positives emerging during this month, during November we have seen demand bouncing back from weak October levels. Also, December month is also seeing domestic petcoke prices correcting.