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MOSL: BIRLA CORPORATION: Higher volume and realization drive EBITDA beat

BIRLA CORPORATION: Higher volume and realization drive EBITDA beat

(BCORP IN, Mkt Cap USD1b, CMP INR994, TP INR1275, 28% Upside, Buy)

 

Mukutban plant likely to achieve EBITDA break-even by end-FY23

• Birla Corporation (BCORP)'s 1QFY23 earnings were above our estimate led by higher volume/realization (3%/2% beat); EBITDA/OPM/profit stood at INR2.6b/12%/INR736m (est. INR2.3b/11%/INR418m), respectively.
• The Mukutban plant started commercial production from 30th Apr'22 and should achieve EBITDA break-even by end-FY23. Its cement EBITDA/t would have been INR751 (v/s reported INR645), excluding start-up costs of this plant.
• We raise our FY23E/FY24E EBITDA by 7% each on higher volume/realization, thus driving our EPS increase of 43%/22%, respectively. We retain our BUY rating, given its attractive valuation (trading at 7.4x FY24E EV/EBITDA).

Cost escalation hurts profitability; EBITDA/t at INR660

• BCORP's revenue/EBITDA/adjusted PAT stood at INR22b/INR2.6b/INR736m (+26%/-25%/-48% YoY and 4%/12%/76% above our estimates), respectively. Cement realization improved 8% YoY/5% QoQ. Sales volume rose 17% YoY to 3.93mt. Revenue from the Jute segment grew 10% YoY (down 10% QoQ).
• Blended cost of production/t grew 18% YoY, led by a 34% YoY increase in variable cost (due to higher power and fuel prices) and 7% rise in freight cost in 1QFY23. Other expenses/t grew 12% YoY/17% QoQ partly due to start-up cost of the new plant and increased spending on coal mining.
• EBITDA declined 25% YoY and OPM contracted 8pp YoY to 12%. EBITDA/t stood at INR660 v/s INR1,026/INR653 in 1QFY22/4QFY22, respectively. Interest expense and depreciation jumped 10% and 16% YoY, respectively.
• Net debt stood at INR37b v/s INR34b as of Mar'22. Average cost of borrowing was down 65bp YoY to 6.68%.

 

Highlights from the management commentary

• Capacity utilization (CU) stood at 88% (including Mukutban capacity) v/s 90% in 1QFY22. On a like-for-like basis, CU reached 101% in 1QFY23.
• Coal extraction from captive mine at Sial Ghogri was 19% above its quarterly rated capacity. AFR usage stood at 12% of fuel consumption v/s 4%/7% in 1QFY22/FY22, respectively.