Birla Corp - Core disappoints; PAT higher; FY14 to be better; Buy - Anand Rathi

2% yoy revenue growth. Birla Corporation's aggregate revenues grew 2% yoy following 4% growth in cement. Cement volumes, at 1.71m tons, grew 5% yoy (10% qoq), the highest in any quarter despite the ban on mining limestone at the Chanderia facility. Realizations dipped 1% yoy (5% qoq) to Rs. 3,580 a ton due to weak prices in the Centre and East regions during the quarter. The jute division revenues, however, dropped 10% yoy due to production interruptions early in the quarter.

EBITDA down 17%, PAT up 26% yoy. Despite better volumes, EBITDA fell 17%, driven by cost inflation in power & fuel (up 17% yoy), freight (up 29% yoy), RM (up 36% yoy) and staff (up 25% yoy). EBITDA/ton at Rs. 375 (vs Rs. 505 yoy, Rs. 337 qoq) was lower than estimated. The jute division saw a turnaround with a positive PBIT of Rs. 16m vs a Rs. 25m loss yoy and Rs. 17m qoq. Resumption of work, together with machinery upgrading and manpower rationalization, could return it to profitability. Management expects a similar performance in FY14. PAT was better than estimated due to higher other income and lower interest and tax rate.

Update on projects. The company had filed a petition in the Supreme Court challenging the High Court order prohibiting mining and blasting at its Chanderia plant. It was permitted to carry on mining operations manually (without blasting) between 18 Mar and 14 Apr'13 to enable the CBRI to study the impact of mining on the Chittorgarh fort. The report is expected to be submitted shortly, after which the court will take up the matter. The company hopes for relief in the form of mining without blasting and will then pursue its 1.5m-ton expansion project.

Our take. The operating performance belied our estimates chiefly because of mounting cost pressures even as profit surprised positively. During FY14, we expect improvement. We maintain our Buy rating, with a target of Rs. 360 at which, the stock would trade at 4.5x Jun'14e EV/EBITDA, and an EV per ton of US$45. Risk: Decline in cement prices.

Source : Equity Bulls

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