Widely read:
AI-generated image
When the whole market is busy observing the various acquisitions and the rising capacity of UltraTech Cement and Adani Cement, a different story is unfolding just below the surface. Dalmia Bharat is expanding aggressively, with a fresh capex plan of Rs 3,520 crore, pushing its total cement production capacity to 55.5 MTPA (million tonnes per annum). This move comes despite a critical issue - the company already has the lowest capacity utilisation among major cement players.
While UltraTech Cement and Shree Cement maintain utilisation rates well above 75 per cent, Dalmia Bharat lags at below 65 per cent. This means that even with significant existing capacity, a large chunk of its production assets remains underutilised. Yet, the company is doubling down, aiming to reach 110 MTPA by FY31. The question is simple but crucial: Is this a bold long-term bet or a misstep in capital allocation?
Capacity expansion without pricing power - A castle with a moat but no water?
At first glance, Dalmia Bharat's capacity expansion strategy appears to be a strong vote of confidence in India's structural demand growth. But in the
cement business
, scale alone does not guarantee success. Pricing power matters more than production capacity. UltraTech Cement and Adani Cement dominate regions where pricing discipline is stronger. Dalmia Bharat, however, is expanding in South and East India - regions known for fragmented supply and intense price competition.
Cement pricing power follows market consolidation
Regions with fewer players and higher concentration see better utilisation and stronger pricing
| Metric | North | West | Central | East | South |
|---|---|---|---|---|---|
| No. of players | 7 | 10 | 8 | 15 | 25 |
| FY24 utilisation levels (%) | 85 | 72 | 75 | 73 | 62 |
| Rs/bag | 381 | 396 | 382 | 373 | 377 |
| Top 2 player share (%) | 47 | 54 | 60 | 36 | 21 |
| Source: JSW Cement's IPO prospectus | |||||
A simple test reveals the risk: UltraTech Cement, operating in higher-margin regions, converts its scale into profitability. Dalmia Bharat, despite being a cost leader, has yet to demonstrate the same pricing strength. Expansion in a weak-pricing market risks turning into an endless volume game - more cement produced, but not necessarily more profits.
Unless demand outstrips supply at an accelerating pace, there is little to suggest that the company can suddenly gain pricing control in its markets. The company argues that industry consolidation will help. However, the risk is that UltraTech Cement and Adani Cement, with deeper pockets, use their dominance not to raise prices, but to sustain price competition longer than weaker players can tolerate. This could trap Dalmia Bharat in a cycle of expanding capacity without ever achieving optimal profitability.
Suggested read:
A concrete analysis of the cement industry
Read this before investing in a cement company
Growth at the cost of ROCE - A long-term wealth destroyer?
Dalmia Bharat's aggressive expansion has had an unintended consequence: lower return on capital. Capacity utilisation has fallen from 72 per cent in FY20 to 63 per cent in FY24, pulling down ROE and ROCE in the process. Management argues that patience is key and that long-term returns will improve. But cement is a capital-heavy business where the return on incremental capital matters more than absolute growth.
Dalmia Bharat's aggressive expansion backfires on returns
Higher capacity growth than volume growth leads to lower utilisation, dragging down return ratios
| Metric | Dalmia Bharat | Shree Cement | Adani Cement | UltraTech Cement |
|---|---|---|---|---|
| FY19-24 capacity expansion (% pa) | 11.1 | 7.1 | 4.6 | 5.2 |
| FY19-24 volume growth (% pa) | 9.0 | 6.5 | 2.0 | 7.3 |
| FY24 utilisation level | 63 | 77 | 85 | 84 |
| FY24 ROE | 5.3 | 12.2 | 13.1 | 12.3 |
For an investor, the most important question is not how much the company is growing, but how efficiently capital is being deployed.
The cement industry has seen similar optimism before. Many companies, including mid-sized players, have expanded under the assumption that demand growth would eventually catch up. The reality, however, has often been decades of cyclical overcapacity, where only the most capital-efficient players emerge stronger.
Dalmia Bharat must prove that its expansion is more than just asset accumulation. If the additional capacity does not lead to superior return ratios, it risks becoming a capital trap - a business that grows but does not compound value for shareholders.
Suggested read: A simple measure to judge capital allocation
Cost leadership without profit leadership
Dalmia Bharat prides itself on being among India's lowest-cost cement producers. It has optimised power consumption, increased its use of blended cement, and struck long-term procurement deals. These efforts, however, raise an uncomfortable question: If it is such an efficient producer, why do its EBITDA per tonne still lag behind UltraTech Cement and Shree Cement?
Dalmia Bharat leads on cost efficiency
Lower production costs give Dalmia Bharat an edge?
| Cost (Rs/tonne) | FY24 | FY23 | FY22 |
|---|---|---|---|
| UltraTech Cement | 3,862 | 3,987 | 3,379 |
| Adani* | 3,621 | NA | NA |
| Shree Cement | 3,385 | 3,530 | 2,858 |
| Dalmia Bharat | 3,133 | 3,293 | 2,940 |
| *FY22 and FY23 numbers not available due to the integration phase | |||
Low costs alone do not make a great business. Margins do.
The company's reliance on cost leadership without pricing power could prove to be a long-term weakness. UltraTech Cement and Ambuja Cements are actively reducing their own cost bases while benefiting from superior pricing in their core regions. As a result, Dalmia Bharat's relative cost advantage could shrink over time, making its ability to compete solely on efficiency far less compelling.
Will market consolidation improve pricing?
Management believes that industry consolidation will allow stronger players to eventually raise prices. However, history offers little evidence that acquisitions alone lead to better pricing discipline.
Cement M&A heats up as UltraTech and Adani dominate deals
The southern market is witnessing rapid consolidation
| Acquirer | Target | Capacity (MTPA) | Region |
|---|---|---|---|
| Adani | Sanghi Industries | 8.6 | West |
| Adani | Penna Cement | 10.0 | South |
| Adani | Orient Cements | 8.5 | South, West |
| UltraTech Cement | India Cements | 15.0 | South |
| UltraTech Cement | Star Cement* | 3.0 | Northeast |
| UltraTech Cement | Kesoram Cement | 5.0 | East, South |
| Sagar Cement | Andhra Cement | 2.6 | South |
| *UltraTech acquired 8.5 per cent stake | |||
UltraTech Cement and Adani Cement are not expanding their market share out of benevolence. Their strategy is likely to involve sustaining price pressure longer than weaker rivals can endure. Instead of improving margins, consolidation could keep prices artificially low for years as the biggest players secure dominant positions.
For Dalmia Bharat, the expectation that UltraTech Cement and Adani Cement's moves will improve pricing for everyone may prove overly optimistic. Pricing power is earned, not granted by external factors. If demand does not pick up at an accelerated rate, the company could find itself operating in a higher-capacity, yet still weak-pricing environment - an outcome that would keep its return ratios depressed.
Conclusion: A long-term bet or a capital misstep?
Dalmia Bharat's expansion plan is a test of conviction. Management is betting that India's infrastructure boom and industry consolidation will eventually push utilisation rates higher and strengthen pricing discipline. Investors, however, are not yet convinced.
The company's lower EV/EBITDA multiple compared to peers reflects market scepticism. It signals that investors are wary of whether higher capacity will truly translate into higher earnings per share.
Dalmia Bharat trades at a discount
Low return ratios keep Dalmia Bharat's valuation subdued
| Company | EV/EBITDA |
|---|---|
| Dalmia Bharat | 14.4 |
| Shree Cement | 23.9 |
| Adani Cement | 19.4 |
| UltraTech Cement | 25.4 |
| Data as of March 6, 2025 | |
The fundamental challenge remains: the company is spending aggressively today for returns that remain uncertain tomorrow. If pricing stabilises and utilisation rises, the company could see a re-rating. But if UltraTech Cement and Adani Cement continue their dominance in both pricing and cost control, Dalmia Bharat's expansion could turn into an expensive and prolonged struggle for profitability.
For now, the company's expansion is not a guaranteed path to higher returns - it remains a high-stakes wager on the future of India's cement industry.
Investing in cement stocks? Get expert insights first
Dalmia Bharat's expansion strategy presents both opportunities and risks. In a capital-intensive sector like cement, understanding pricing power, return on capital, and competitive positioning is crucial before making an investment decision.
With Value Research Stock Advisor, you get independent, data-driven stock recommendations backed by in-depth analysis of key financial metrics, industry trends, and long-term growth potential.
Make informed investment choices - get access today. Learn more .
Also read : Why UltraTech's cables foray won't jolt rivals just yet
This article was originally published on March 16, 2025.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
For grievances: [email protected]
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
