Goldman Sachs, in its note on Thursday, highlighted key factors as to why the cement sector has underperformed the market over the last three months. Those include:
- Expectation of high energy costs driven by West Asia crisis compounded by depreciating rupee.
- Weakening demand outlook in light of lower potential government spends.
- Continued capacity addition in the sector driving concern on limited price increases.
While the first factor has now been addressed with the resolution of the US-Iran war and the subsequent fall in oil prices and thereby a strengthening currency against the US Dollar, there are still risks that remain.
According to Goldman Sachs, while those factors have been addressed and factored in only partly in Dalmia Bharat’s stock price, a new concern has now emerged, that of a potentially sub-par monsoon season, which could negatively impact construction demand in rural India.Calling Dalmia Bharat a tactical play, Goldman Sachs upgraded its rating on the stock, citing expectations of the company’s growth being the highest among its peers and with the stock trading at compelling valuations compared to its peers.
At the current levels, Dalmia Bharat shares are trading at a one-year forward Enterprise Value / EBITDA multiple of 10.4 times its estimated earnings for financial year 2027 and 9.07 times for financial year 2028. In comparison, the largest player UltraTech, is trading at 18.6 times financial year 2027 and 15.5 times financial year 2028 EV/EBITDA.
Structurally though, Goldman Sachs continues to prefer UltraTech Cement, for which it has a “buy” recommendation and a price target of ₹13,160 per share.
Of the 40 analysts who have coverage on Dalmia Bharat, 27 have a “buy” rating, eight have a “hold” rating and five have a “sell” rating.
Shares of Dalmia Bharat are trading 1.6% higher on Thursday at ₹1,763. The stock is still down 17.5% on a year-to-date basis and is 30% below its 52-week high of ₹2,496.
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