Birla Corp - Q2FY21 Result Update - YES Securities

Valuation: Taking cognizance of the fact that BCORP will (1) scale to ~21 MTPA by FY23E (fifth largest cement group in India) from 15.4 MTPA currently without (2) significant leveraging as ~85% of capex over FY21E-FY23E should be self-funded (peak net debt/EBITDA of 2.74x in FY21E which should decline to 2.35x by FY23E) and enjoying (3) 75% volume exposure to price favorable markets of Central (~52%) and North (~23%) by FY23E, we value the company at 8x EV/EBITDA on Sep-22E arriving at a TP of Rs 1,108 translating into 72% potential upside (assigned multiple is at 40% discount to average valuation of peer companies due to on-going legal cases w.r.t legacy). We maintain our BUY rating on the stock.

Key result and presentation highlights:

- Demand and pricing: Led by rural, retail and IHB segments in UP, MP and Bihar; the company managed to grow its volumes by 2% y/y for Q2. Capacity utilization for BCORP stood sturdy - at 84% during Q2. Despite pricing in home markets declining by 2-3% sequentially (as per our channel checks), blended NSR/te of BCORP improved by 0.5% q/q due to significant push of premium segment sales (contributing 48% to trade channel sales during Q2 vis-à-vis 36% last quarter).

- Cost savings: BCORP in its previous press releases has been mentioning about focus on saving logistics cost through engaging with global consultancy firm and commissioning of railway siding at Kundanganj. The same has been reflected innumbers as freight costs/te for H1FY21 is down 7.5% y/y while inter-clinker costs/te of cement is down ~16% y/y. Further, driven by commissioning of 12 MW WHRS at Maihar and softer input costs, clinker production cost/te of BCORP for H1FY21 is down 6.2% y/y.

- EBITDA/te: Company delivered a 25% beat on EBITDA/te in Q2 as compared to our estimates - which came in at Rs 1,174. Beat was primarily driven by higher NSR/te and lower than expected clinker production cost/te.

- Capex: Company expects to commission ~4 MTPA IU in Mukutban, Maharashtra by Sep 2021 while kiln capacity addition at Chanderia, Rajasthan is nearing completion. In view of recovery witnessed by the sector in past two quarters, BCORP has decided to bring back on track its 1.2 MTPA GU commissioning in Kundanganj, UP. Further, window for tax incentives at Mukutban plant has been extended by 18 months until December 2022.

- Balance sheet: Net debt continued to hover around Rs 33.8 bn (vs Rs 33.4 bn as of FY20). Capex incurred during H1FY21 stood at Rs 3.37 bn.

- Others: Trade mix stood at 81% while blended cement sales was 93.4% during the quarter.

Outlook

- Based on the exceptional performance during Q2FY21, we upgrade our volume/EBITDA estimates by 8%/20% for FY21E and factor in volume/EBITDA CAGR of 15%/9% over FY21E-FY23E.

- We expect increase in net debt to be limited to ~Rs 4 bn (bear case scenario) over FY20-FY23E with peak net debt/EBITDA of 2.74x in FY21E which should decline to 2.35x by FY23E translating into balance sheet stability.

Key Risk:

- Any adverse outcome of on-going legal tussle w.r.t legacy would result into de-rating of the stock.

https://ysil.in/docs/default-source/research/instieq/birla-corp-q2fy21.pdf

Shares of BIRLA CORPORATION LTD. was last trading in BSE at Rs.643.5 as compared to the previous close of Rs. 640.6. The total number of shares traded during the day was 21339 in over 1470 trades.

The stock hit an intraday high of Rs. 658.95 and intraday low of 640.2. The net turnover during the day was Rs. 13859557.

Source : Equity Bulls

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