Asset sale alone won't re-rate Dalmia Bharat

Dalmia Bharat Ltd has inched a step closer to its objective of becoming a pure play cement producer. Its wholly-owned unit Dalmia Cement (Bharat) Ltd has entered into a binding agreement to sell its entire 42.36% stake in the refractory business to promoter group company, Sarvapriya Healthcare Solutions Pvt. Ltd.

- Harsha Jethmalani

The deal is expected to be concluded within 30 days. In a conference call on Monday, Dalmia Bharat’s management said it doesn’t see a risk of delay.

With this, the stake in Indian Energy Exchange (IEX) is the only non-core investment left with the company. In FY22, Dalmia Bharat had sold a 5.2% stake in IEX and divested its stake in Hippo Stores on a slump sale basis. Currently, Dalmia Bharat’s stake in IEX stands at about 15% and the management has told analysts that it is exploring options for further stake dilution.

To that extent, reducing exposure to non-core assets is encouraging as this is among the pain points for investors in the Dalmia Bharat stock.

That said, this doesn’t change Dalmia Bharat’s earnings outlook or re-rating prospects. “The continued focus on non-core assets divestment is directionally positive for the company. But based on this transaction, which is worth ₹800 crore, we have not revised our earnings estimate," said Rajesh Ravi, institutional analyst, cement, HDFC Securities Ltd. In the larger scheme of things, this figure doesn’t move the needle on the company’s earnings outlook, he added.

For a meaningful earnings revival, the pace of cement capacity additions and regional diversification remain paramount. In a bid to gain market share, cement producers have been on a capacity expansion spree.

Dalmia Bharat aims to reach 54 million tonne (mt) capacity in FY24, up from 49mt guided earlier. This would be aided by completion of acquisition of some cement assets of Jaiprakash Associates Ltd, the management said.