Nomura ups Dalmia Bharat target price by 48%, maintains ‘buy’ rating

Dalmia’s acquisition of Jaiprakash Associates Limited’s assets has faced delays, despite being announced over a year ago. The main hurdle seems to be the lack of approval from lenders, with more than 30 banks involved. Nomura Research sees National Asset Reconstruction Company Ltd (NARCL)’s bid as positive progress and anticipates the deal closing in the second half of FY25.

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Nomura maintained a ‘buy’ rating on Dalmia Bharat Ltd and raised its target price to Rs 2,900 per share, marking a 48 percent increase. In early April, the National Asset Reconstruction Company Ltd (NARCL) submitted a binding bid to acquire Jaiprakash Associates. The brokerage sees the bid positively and expects the deal to close in the second half of FY25.

Dalmia Bharat’s acquisition of assets of Jaiprakash Associates Limited has faced delays, despite being announced over a year ago. The main hurdle seems to be the lack of approval from lenders, with more than 30 banks involved. Nomura Research sees the NARCL bid as a positive development and anticipates the deal closing in the second half of FY25.

In early April, NARCL submitted a binding bid to acquire Jaiprakash Associates Ltd (JAL)’s debt. JAL’s FY23 reports show outstanding debt of Rs 26,000 crore, with Rs 19,000 crore in principal outstanding. NARCL bid Rs 10,000 crore against the principal outstanding. Banks will invite counter bids under the Swiss Challenge mechanism, but NARCL’s bid is likely to be accepted due to the sovereign-guaranteed security receipts, providing a valuation backstop and enabling provision write-backs for banks.

If banks accept the bid, Dalmia will only need to deal with one entity, instead of over 30 banks, potentially accelerating the process. This addresses the current delay attributed to lenders, according to management. Acquiring JAL will give Dalmia the third-largest clinker base in the central region and diversify its clinker base, positioning it as a pan-India player, potentially leading to a stock re-rating, according to Nomura.

Dalmia’s acquisition of JAL’s cement assets worth Rs 5,600 crore has faced delays due to various issues. The deal involves four components. Legal disputes between JAL and UltraTech over the 2.2MT clinker asset, negotiations between Dalmia and SAIL’s management regarding terms of clinker use, Dalmia signed a binding agreement for 3.5MT/5.2MT clinker/cement assets, delayed due to involvement of more than 30 banks and Dalmia leased this unit for seven years with an option to purchase at Rs 250 crore, expected to be commissioned after other central assets ramp-up.

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