MOSL: BIRLA CORPORATION (Buy)-Highest EBITDA/t since FY12 led by improved realizations
BIRLA CORPORATION: Highest EBITDA/t since FY12 led by improved realizations
(BCORP IN, Mkt Cap USD0.7b, CMP INR593, TP INR780, 32% Upside, Buy)
- Margin improvement driven by realizations: volumes rose 4% YoY to 3.6mt. Cement realizations were up 10% YoY to INR4,954/t. Net sales grew 14% YoY to INR18.8b (our estimate: INR17.4b). Total cost/t was up 3% YoY to INR4,119/t. Thus, EBITDA/t rose 51% YoY to INR1,057. Accordingly, EBITDA grew 56% YoY to INR3.9b (our estimate: INR3.1b), with the margin improving 5.5pp YoY to 20.4%. PAT grew 68% YoY to INR1.4b (our estimate: INR1.1b).
- Key highlights: (1) Sales of premium products grew 12% YoY. Premium brands accounted for 37% of trade cement sales. (2) Share of non-trade sales was down to 17.7% from 21.2% a year ago. (3) Chanderia unit operations witnessed a major turnaround due to increased capacity utilization, branding activities, higher trade sales and blended cement. (4) 12.2MW power generation unit, which uses waste heat recovery system (commissioned at Maihar), is likely to substantially bring down energy cost. (5) BCORP is adding clinker capacity of 480,000 tons, which, in turn, can feed the additional clinker needs of the Kundanganj grinding unit in eastern Uttar Pradesh.
- Valuation view: With capacity utilization levels at almost 90%, volume growth is likely to be constrained until new capacities go on stream. We raise our FY20 EBITDA estimate by 10-11% to factor in higher realizations, but our PAT estimate is up by only 5% as we build in a higher tax rate/lower other income. Ongoing capex plans will also keep debt at elevated levels over the medium term. Also, we have not factored in the clinker unit in Chanderia due to the lack of clarity on the timelines and capex amount. We value BCORP at 6.5x FY21E EV/EBITDA to arrive at a TP of ~INR780. Maintain Buy.
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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