Birla Corporation - Strong cement profitability despite mining ban; Hold - Anand Rathi

Birla Corp. reported strong profit on better performance of its cement business. Ban on mining at its Chanderia plant continues, leading to less-than-optimum profitability. The division posted strong EBITDA/ton of Rs.735, despite procuring clinker from outside. The company declared interim dividend of Rs.2.5/share. We maintain Hold.

- 24% yoy revenue growth. Aggregate revenues grew 24% yoy due to 40% and 23% yoy growth in cement and power respectively. Cement volumes, at 1.58m tons, grew 12% yoy (down 3% qoq). Realizations rose 25% yoy (down 2% qoq) to Rs.3,930 a ton due to strong prices in Central & East regions. Jute division's revenues, however, dropped 94% yoy due to a strike at the mill (suspended operations since end-Mar'12). Following a tripartite settlement with the trade unions, work has resumed w.e.f. 18 Oct'12.

- EBITDA up 447%, PAT 207% yoy. EBITDA and PAT rose 447% and 207% yoy, respectively, driven by strong growth in cement realisations. EBITDA/ton came in a strong Rs.735 (vs Rs.805 qoq and Rs.125 yoy) despite some outsourced clinker. EBITDA was boosted by forex gain of Rs.81m (Rs.51: EBITDA/ton) against loss of Rs.122m qoq and Rs.139m yoy. Jute remained in the red due to strike. Resumption of, work together with machinery upgradation plus manpower rationalization, could bring back profits to the division.

- Update on projects. The company has filed a petition in the Supreme Court challenging the High Court order, prohibiting mining and blasting at its Chanderia plant. The petition has been admitted and the case is pending for further hearing. It has received environmental clearance for the 1.5m ton brownfield expansion, but will have to wait for a favorable decision from the Supreme Court. Its 0.7m-ton grinding unit in West Bengal, was commissioned in Aug'12 post which its capacity has reached 9.3m tons.

- Valuation. At our target of Rs.320, the stock would trade at 4.5x FY14e EV/EBITDA, an EV per ton of US$42. Risk: Decline in cement prices.

Source : Equity Bulls

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