The dramatic year-on-year profit improvement stems primarily from the low base effect of Q2 FY2025, when the company posted a mere ₹46 crores in profit. The sequential decline from Q1 FY2026, however, reflects the typical seasonality in the cement sector, with monsoon-affected volumes in the July-September quarter. Despite the revenue dip, Dalmia Bharat demonstrated pricing discipline and cost management, with operating margins expanding to 20.37% from 14.06% a year ago.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 | Dec'23 |
|---|---|---|---|---|---|---|---|---|
| Revenue (₹ Cr) | 3,417 | 3,636 | 4,091 | 3,181 | 3,087 | 3,621 | 4,307 | 3,604 |
| QoQ Change | -6.02% | -11.12% | +28.61% | +3.05% | -14.75% | -15.93% | +19.51% | +14.30% |
| Net Profit (₹ Cr) | 236 | 393 | 435 | 61 | 46 | 141 | 315 | 263 |
| QoQ Change | -39.95% | -9.66% | +613.11% | +32.61% | -67.38% | -55.24% | +19.77% | +121.01% |
| Operating Margin | 20.37% | 24.28% | 19.38% | 16.06% | 14.06% | 18.48% | 15.18% | 21.61% |
| PAT Margin | 6.99% | 10.86% | 10.73% | 2.07% | 1.59% | 4.00% | 7.43% | 7.38% |
Financial Performance: Margin Expansion Drives Profitability
Dalmia Bharat's Q2 FY2026 performance reveals a tale of two narratives. On the revenue front, net sales of ₹3,417 crores represented modest 10.69% year-on-year growth but a 6.02% sequential decline from Q1 FY2026's ₹3,636 crores. This sequential contraction aligns with typical monsoon seasonality in the cement industry, where construction activity moderates during the July-September period. However, the company's ability to maintain pricing discipline and control costs resulted in operating margins expanding to 20.37%, up from 14.06% in Q2 FY2025 and comparable to the 20.37% reported in the same quarter.
The profitability improvement was driven by multiple factors. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) surged to ₹696 crores from ₹434 crores a year ago, reflecting better cost management despite inflationary pressures. The company's gross profit margin stood at 18.73%, whilst the PAT margin improved to 6.99% from 1.59% in Q2 FY2025. This margin expansion occurred despite interest costs rising to ₹122 crores—the highest quarterly figure in recent history—indicating improved operational efficiency offsetting higher financing expenses.
The tax expense for Q2 FY2026 stood at ₹79 crores, representing an effective tax rate of 24.84%, significantly higher than the 6.00% reported in Q4 FY2025 but more normalised compared to the 32.88% in Q2 FY2025. This normalisation of the tax rate, combined with improved operating performance, contributed to the strong year-on-year profit growth. However, the sequential profit decline of 39.95% from Q1 FY2026's ₹393 crores underscores the volatility inherent in quarterly earnings, influenced by seasonal demand patterns and operational dynamics.
Operational Challenges: Capital Efficiency Concerns Persist
Whilst Dalmia Bharat has demonstrated impressive margin recovery, the company's return on equity (ROE) of 4.42% for the latest quarter remains a significant concern. This figure falls substantially below the cement industry's typical ROE benchmarks and suggests that the company is not generating adequate returns relative to the capital employed. The five-year average ROE of 6.70% indicates that this is not merely a one-quarter aberration but a structural challenge requiring management attention. Higher ROE signifies better capital efficiency and profitability—a metric where Dalmia Bharat currently underperforms its peers.
The company's return on capital employed (ROCE) of 5.82% similarly trails industry standards, though the five-year average of 7.54% shows some historical improvement. With total debt of ₹5,258 crores and net debt of ₹656 crores, Dalmia Bharat maintains a conservative debt-to-equity ratio of 0.03, indicating low financial leverage. Whilst this prudent capital structure reduces financial risk, it also suggests that the company may not be optimally utilising its balance sheet to drive growth. The interest coverage ratio of 4.21x provides adequate cushion for debt servicing, though the rising interest costs—which hit ₹122 crores in Q2 FY2026—warrant monitoring.
⚠️ Key Monitoring Point: Rising Interest Burden
Interest expenses in Q2 FY2026 reached ₹122 crores, the highest quarterly figure in recent history, up from ₹108 crores in Q1 FY2026 and ₹98 crores in Q2 FY2025. This 24.49% year-on-year increase in financing costs, occurring alongside modest revenue growth, could pressure profitability if not matched by corresponding improvements in operational efficiency. With the interest coverage ratio at 4.21x, the company maintains adequate servicing capacity, but the upward trajectory of interest costs requires close attention in the context of potential capacity expansion plans.
The company's sales-to-capital-employed ratio of 0.64x indicates that Dalmia Bharat generates ₹0.64 of revenue for every rupee of capital employed—a metric that suggests room for improvement in asset utilisation. The depreciation charge of ₹322 crores in Q2 FY2026, consistent with the previous quarter, reflects the capital-intensive nature of the cement business. With shareholder funds of ₹17,374 crores as of March 2025 and a book value per share of ₹914.42, the company possesses a solid equity base, though translating this into superior returns remains the key challenge.
Industry Context: Cement Sector Dynamics and Competitive Positioning
The Indian cement industry has witnessed significant volatility over the past year, with demand patterns influenced by infrastructure spending, real estate activity, and seasonal variations. Dalmia Bharat's cumulative installed capacity of 38.60 million tonnes per annum positions it as a significant player in the market, though it trails larger competitors in absolute scale. The company's 10.69% year-on-year revenue growth in Q2 FY2026 suggests reasonable volume traction, particularly considering the challenging monsoon quarter.
The cement sector's profitability has been under pressure from elevated energy costs, logistics expenses, and competitive pricing dynamics. Dalmia Bharat's ability to expand operating margins to 20.37% in Q2 FY2026 from 14.06% a year ago indicates effective cost management and potentially favourable regional pricing dynamics. However, the sequential margin contraction from Q1 FY2026's 24.28% reflects the typical monsoon-related pressures on realisation and volumes. The company's presence across 14 manufacturing facilities provides geographic diversification, though regional demand variations can create quarterly volatility.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Dalmia Bharat | 45.22 | 2.40 | 4.42 | 0.06 | 0.40 |
| J K Cements | 55.60 | 8.31 | 12.67 | 0.69 | 0.23 |
| ACC | 15.00 | 1.88 | 12.46 | -0.14 | 0.40 |
| Shree Cement | 72.84 | 5.03 | 5.21 | -0.26 | 0.37 |
| The Ramco Cement | 181.49 | 3.27 | 1.16 | 0.60 | 0.19 |
Compared to its peers, Dalmia Bharat trades at a P/E ratio of 45.22x, which appears reasonable relative to J K Cements (55.60x) and Shree Cement (72.84x), though elevated compared to ACC (15.00x). The company's price-to-book ratio of 2.40x is the lowest among major peers, potentially reflecting the market's concerns about capital efficiency as evidenced by the 4.42% ROE. Whilst Dalmia Bharat's debt-to-equity ratio of 0.06 represents one of the strongest balance sheets in the sector, the low ROE suggests that this conservative capital structure may be coming at the cost of growth and returns. The company's dividend yield of 0.40% matches ACC and exceeds several peers, though the absolute dividend payout of ₹5 per share remains modest.
Valuation Analysis: Premium Valuation Despite Moderate Returns
Trading at ₹2,243.25, Dalmia Bharat commands a trailing twelve-month P/E ratio of 45.22x, reflecting a significant premium to its historical earnings. The company's price-to-book value of 2.40x, whilst lower than several peers, still represents a substantial premium to its book value of ₹914.42 per share. This valuation appears stretched when considered alongside the company's 4.42% ROE and 5.82% ROCE, suggesting that investors are pricing in significant future improvement in capital efficiency and profitability.
The enterprise value-to-EBITDA multiple of 16.34x and EV-to-sales ratio of 3.06x indicate that the market is assigning considerable value to Dalmia Bharat's operational platform and growth potential. However, the PEG ratio of 45.22x—calculated based on the five-year EBIT growth rate of 18.84%—suggests that the current valuation may not adequately account for the growth trajectory. The company's market capitalisation of ₹42,070 crores positions it as the sixth-largest cement company by market value, though its valuation metrics suggest limited margin of safety at current levels.
The stock's 52-week range of ₹1,602.00 to ₹2,495.95 illustrates significant volatility, with the current price sitting 40.01% above the low and 10.14% below the high. The dividend yield of 0.40%, based on the latest dividend of ₹5 per share (ex-dividend date: 23 June 2025), provides minimal income support to investors. With a dividend payout ratio of 20.70% over the past five years, the company retains the majority of earnings for reinvestment, though the modest ROE raises questions about the efficiency of this capital deployment. The valuation grade of "Very Expensive" assigned since 4 August 2025 reflects market consensus that the stock trades at elevated multiples relative to fundamentals.
Shareholding Pattern: Institutional Confidence Building
Dalmia Bharat's shareholding pattern reveals increasing institutional interest, with mutual fund holdings rising sharply to 13.13% in Q2 FY2026 from 10.66% in the previous quarter—a significant 2.47 percentage point increase. This sustained accumulation by domestic mutual funds, which has continued for four consecutive quarters (from 7.53% in September 2024), signals growing confidence amongst professional investors in the company's long-term prospects. The number of mutual fund investors increased to 28 from 27, indicating broadening institutional participation.
| Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | QoQ Change |
|---|---|---|---|---|---|---|
| Promoter | 55.84% | 55.84% | 55.84% | 55.84% | 55.84% | 0.00% |
| FII | 8.76% | 8.24% | 8.28% | 9.08% | 8.94% | +0.52% |
| Mutual Funds | 13.13% | 10.66% | 10.04% | 8.17% | 7.53% | +2.47% |
| Insurance | 4.31% | 5.97% | 5.93% | 6.08% | 6.64% | -1.66% |
| Other DII | 0.51% | 0.88% | 0.60% | 0.58% | 0.55% | -0.37% |
| Non-Institutional | 17.46% | 18.42% | 19.31% | 20.24% | 20.50% | -0.96% |
Foreign institutional investors (FIIs) also increased their stake to 8.76% from 8.24%, adding 0.52 percentage points during the quarter. The number of FII holders rose to 187 from 179, suggesting growing international interest in the stock. However, insurance companies reduced their holdings to 4.31% from 5.97%, a notable 1.66 percentage point decline, with the number of insurance investors falling to 13 from 14. This divergence in institutional behaviour—mutual funds and FIIs accumulating whilst insurance companies pare holdings—reflects differing investment horizons and risk assessments.
The promoter holding remains rock-solid at 55.84%, unchanged for multiple quarters, with zero pledging of shares. This stable promoter base, led by Keshav Power Limited (36.42%) and Sita Investment Company Limited (7.40%), provides governance comfort. The non-institutional shareholding continued its gradual decline to 17.46% from 18.42%, with the number of retail and other investors dropping to 75,689 from 76,488. Overall, institutional holdings (FII + MF + Insurance + Other DII) now stand at 26.71%, up from 25.75% in the previous quarter, indicating professional money is increasingly backing the stock despite valuation concerns.
Stock Performance: Strong Medium-Term Returns, Recent Consolidation
Dalmia Bharat's stock has delivered a respectable 22.57% return over the past year, significantly outperforming the Sensex's 3.61% gain by 18.96 percentage points. This outperformance extends across multiple timeframes, with the stock generating 20.58% returns over six months versus the Sensex's 6.85% (alpha of 13.73%) and year-to-date gains of 27.10% against the benchmark's 7.41% (alpha of 19.69%). The stock has also outpaced the broader cement sector's one-year return of 8.09% by 14.48 percentage points, indicating company-specific factors driving performance.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.53% | 1.73% | -1.20% |
| 1 Month | -9.37% | 1.50% | -10.87% |
| 3 Months | 2.53% | 2.03% | +0.50% |
| 6 Months | 20.58% | 6.85% | +13.73% |
| YTD | 27.10% | 7.41% | +19.69% |
| 1 Year | 22.57% | 3.61% | +18.96% |
| 3 Years | 48.58% | 43.69% | +4.89% |
| 5 Years | 184.40% | 109.92% | +74.48% |
However, recent momentum has weakened, with the stock declining 9.37% over the past month whilst the Sensex gained 1.50%, resulting in negative alpha of 10.87 percentage points. The one-week return of 0.53% also trails the benchmark's 1.73% gain. This near-term underperformance has pushed the stock below its 20-day moving average of ₹2,270.16 and 50-day moving average of ₹2,319.59, though it remains above the 100-day (₹2,235.02) and 200-day (₹2,033.08) moving averages, suggesting the longer-term uptrend remains intact.
The stock's beta of 1.20 indicates it typically moves 20% more than the broader market, classifying it as a medium-beta stock with moderate volatility. The three-year return of 48.58% marginally outpaces the Sensex's 43.69% gain, whilst the five-year return of 184.40% significantly exceeds the benchmark's 109.92%, demonstrating strong long-term wealth creation despite the recent consolidation. However, the two-year return of -0.58% versus the Sensex's 26.35% gain highlights a period of significant underperformance, reflecting the challenges faced by the cement sector during that timeframe. The stock's risk-adjusted return of 0.95 over one year, with volatility of 23.79%, places it in the "medium risk, high return" category.
Technical Analysis: Mildly Bullish Trend with Resistance Ahead
From a technical perspective, Dalmia Bharat's chart presents a mixed picture. The overall trend classification is "Mildly Bullish," a downgrade from the previous "Bullish" trend that prevailed until 25 September 2025. Since that trend change at ₹2,262.30, the stock has declined 0.58%, indicating loss of momentum. The daily moving average indicator shows a mildly bullish bias, though weekly indicators paint a more cautious picture with MACD signalling mildly bearish and Bollinger Bands indicating bearish conditions.
The stock currently trades at ₹2,243.25, below both its 20-day moving average (₹2,270.16) and 50-day moving average (₹2,319.59), suggesting near-term resistance at these levels. However, the stock remains above its 100-day moving average (₹2,235.02) and 200-day moving average (₹2,033.08), indicating the longer-term uptrend structure remains intact. The immediate support lies at the 52-week low of ₹1,602.00, whilst resistance is expected around the ₹2,270-2,320 zone. The 52-week high of ₹2,495.95 represents a significant resistance level, approximately 11.27% above current levels.
On-balance volume (OBV) indicators show a mildly bearish trend on the weekly chart with no clear trend on the monthly timeframe, suggesting accumulation-distribution patterns are not providing strong directional cues. The KST (Know Sure Thing) indicator displays mildly bearish signals on the weekly chart but bullish on the monthly chart, reflecting the divergence between short-term weakness and longer-term strength. Delivery volumes have shown a 33.06% increase versus the five-day average, though the one-month delivery volume change of -2.92% suggests reduced conviction amongst investors. The trailing one-month average delivery percentage of 66.64% indicates that roughly two-thirds of trading volume represents genuine delivery-based transactions rather than speculative activity.
Investment Thesis: Quality Business with Valuation Concerns
Dalmia Bharat presents a nuanced investment proposition. The company's quality grade of "Average," maintained consistently for the past 20 consecutive quarters since September 2020, reflects a business with solid fundamentals but room for improvement. The financial trend has turned "Positive" for the past two consecutive quarters (since March 2025), indicating improving operational momentum. However, the technical trend of "Mildly Bullish" suggests near-term price momentum has weakened from the earlier "Bullish" phase.
The company's key strengths include a conservative balance sheet with minimal debt (debt-to-equity of 0.03), zero promoter pledging, and strong institutional participation (26.71% holdings). The five-year sales CAGR of 8.96% and EBIT CAGR of 18.84% demonstrate reasonable growth, whilst the absence of significant leverage provides financial flexibility for future expansion. However, the low ROE of 4.42% and ROCE of 5.82% remain significant concerns, indicating that the company is not efficiently converting its capital base into profits. The elevated PEG ratio of 45.22x suggests the current valuation may not adequately compensate for the growth profile.
✅ KEY STRENGTHS
- Strong Balance Sheet: Debt-to-equity of 0.03 provides financial flexibility
- Margin Recovery: Operating margins expanded to 20.37% from 14.06% YoY
- Institutional Confidence: MF holdings increased 2.47% QoQ to 13.13%
- Zero Promoter Pledging: Stable 55.84% promoter holding with no encumbrance
- Positive Financial Trend: Two consecutive quarters of improving fundamentals
- Strong Long-Term Returns: 184.40% five-year return vs Sensex's 109.92%
- Capacity Platform: 38.60 MTPA installed capacity across 14 facilities
⚠️ KEY CONCERNS
- Low Capital Efficiency: ROE of 4.42% significantly below industry standards
- Elevated Valuation: P/E of 45.22x rated "Very Expensive" by market consensus
- Rising Interest Costs: Interest expenses hit ₹122 crores, highest in recent history
- Volume Weakness: Revenue declined 6.02% QoQ despite improved margins
- Weak ROCE: 5.82% return on capital employed indicates underutilisation
- Near-Term Momentum Loss: Stock down 9.37% in past month vs Sensex +1.50%
- High PEG Ratio: 45.22x suggests valuation not justified by growth
Outlook: What to Watch in Coming Quarters
The trajectory of Dalmia Bharat's stock will depend on several key factors in the coming quarters. On the positive side, sustained margin improvement beyond the seasonal Q2 performance, demonstrable progress in improving ROE and ROCE metrics, and continued volume recovery in the post-monsoon season would support the investment case. Additionally, successful capacity utilisation improvements, stable or declining interest costs despite expansion plans, and further institutional accumulation would provide positive catalysts. The company's ability to maintain pricing discipline in a competitive environment whilst growing volumes will be crucial.
📈 POSITIVE CATALYSTS
- Sustained operating margin above 20% in non-monsoon quarters
- ROE improvement towards 8-10% range through better capital deployment
- Volume growth recovery in Q3-Q4 FY2026 post-monsoon season
- Stabilisation of interest costs below ₹120 crores per quarter
- Continued mutual fund and FII accumulation indicating institutional confidence
🚨 RED FLAGS
- Further deterioration in ROE below 4% indicating worsening capital efficiency
- Operating margins falling below 18% suggesting pricing pressure
- Interest costs rising above ₹130 crores impacting profitability
- Continued QoQ revenue declines beyond seasonal monsoon impact
- Insurance companies and FIIs reducing stakes indicating institutional exodus
Conversely, investors should monitor several red flags. Any further deterioration in capital efficiency metrics, inability to sustain margins as competitive intensity increases, or rising debt levels to fund expansion without commensurate returns would be concerning. The elevated valuation leaves limited room for disappointment, and any guidance cuts or weak volume commentary could trigger significant de-rating. The cement sector's inherent cyclicality and susceptibility to raw material cost inflation, energy prices, and demand fluctuations require vigilant monitoring of both company-specific and industry-wide trends.
"Whilst Dalmia Bharat has demonstrated impressive margin recovery and maintains a fortress balance sheet, the persistently low return on equity of 4.42% raises fundamental questions about capital deployment efficiency that must be addressed before the premium valuation can be justified."
Investment Verdict
Score: 57/100
For Fresh Investors: Not recommended for fresh purchases at current valuation. The stock trades at a P/E of 45.22x with "Very Expensive" valuation grade, whilst delivering only 4.42% ROE. Await better entry points around ₹2,000-2,050 levels (10-12% correction) or evidence of sustained ROE improvement above 7-8% before initiating positions. The risk-reward ratio is unfavourable for new investors at current levels.
For Existing Holders: Continue to hold your positions. The improving financial trend (positive for two consecutive quarters), strong institutional accumulation (MF holdings up 2.47% QoQ), and solid long-term track record (184.40% five-year return) justify maintaining exposure. However, consider booking partial profits if the stock approaches ₹2,400-2,450 levels (8-9% upside) or if ROE fails to improve meaningfully over the next 2-3 quarters. Set a stop-loss at ₹2,100 (6.4% downside) to protect against technical breakdown.
Fair Value Estimate: ₹2,050-2,150 (8.6% downside to 4.1% downside from current levels), based on 38-40x earnings multiple applied to normalised FY2026 EPS estimates, reflecting the company's average quality grade, improving but still modest ROE, and sector dynamics. Current price of ₹2,243 offers limited margin of safety.
⚠️ Investment Disclaimer: This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
