MOSL: BIRLA CORPORATION (Buy)-Higher realizations drive margins
Birla Corporation: Higher realizations drive margins
(BCORP IN, Mkt Cap USD0.5b, CMP INR452, TP INR590, 30% Upside, Buy)
- Margins revive from 3QFY18: volumes increased 6% YoY to 3.21mt (v/s our estimate of 3.25mt), as Reliance Cement operated at 75% utilization. Cement realizations rose 4% YoY and 0.3% QoQ to INR4,553/t (v/s our estimate of INR4,438/t due to better pricing in the central regions. Thus, net sales increased 12% YoY (+6% QoQ) to INR15.6b (v/s our estimate of INR15.2b). Total cost/t increased 1% QoQ (+2% YoY) to INR4,205 v/s our estimate of INR 4,010. Thus, consol. EBITDA/t stood at INR645 (v/s our estimate of INR664; +41%YoY, +7%QoQ), leading to EBITDA of INR2.07b (v/s our estimate of INR2.15b; +49%YoY; +12%QoQ). PAT stood at INR274m (as against a loss of INR 218m in 3QFY18) v/s our est. of INR430m.
- Key highlights from management interaction: (1) Construction work has started for Mukutban Greenfield project. The 3.9mt integrated unit is expected to get commissioned by FY22. (2) The company is looking to scale up operations of RCCPL's Kundanganj unit as well, where 1.2mt capacity is being added. On completion of these projects, RCCPL's capacity will be augmented to 10.68mt from 5.58mt. (3) Blended cement accounted for 89% of the total sales in 3QFY19 v/s 85% in 3QFY18 and 87% in 2QFY19. (4) The premium brand, Perfect Plus, was launched in Rajasthan and Haryana, and contributes approximately 10% to total trade sales.
- 9MFY19 performance: Volumes grew 9.3% YoY, resulting in sales/EBITDA/PAT growth of 15%/15%/3.6x YoY. For 4QFY19, we expect volumes to increase 6% YoY. Sales/EBITDA/PAT are expected to grow by 5%/-10%/-37% YoY in 4QFY19.
Birla is engaged in the manufacture and sale of cement in India. Co.'s Cement division offers various cements, such as ordinary portland cement, 43 and 53 grades, portland pozzolana cement, fly ash – based PPC, low alkali portland cement, portland slag cement, low heat cement, and sulphate resistant cement. Its Jute division provides a range of products, including jute yarn, floor and wall covering, lino hessian, decorative fabrics, nursery cloth, scrim, jute carpets, non-woven jute felt, hydrocarbon-free bags/cloth, D.W. canvas, carpet backing cloth, hessian cloth/bags, and sacking bags/cloth.
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