Maintain BUY on Birla Corporation - On a strong footing - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

We maintain a BUY rating on Birla Corporation (BCORP) with an unchanged target price of INR 1,545/share (8.5x Jun'23E consolidated EBITDA). It reported broadly an in-line performance in Q1FY22 as consolidated net sales/EBITDA/APAT fell 18/12/54% QoQ to INR 17.49/3.44/1.42bn respectively. The decline is led by the pandemic-driven 20% volume decline and rising fuel prices. However, better realisation (+2% QoQ) and robust cost controls boosted the unitary EBITDA by 9% QoQ to INR 997/MT, thus moderating the profit contraction. We continue to like BCORP for its large retail presence in the lucrative north/central regions and various cost reduction drives.

Q1FY22 performance: Sales volume fell 20% QoQ, hit by the lockdown. However, NSR rose 2% QoQ on healthy pricing across markets. Opex rose a modest 0.5% QoQ, despite rising fuel/diesel costs and lower utilisation. However, improving production efficiency, rising share of green power, and fixed cost controls offset the impact. The share of green power has increased to 22% in Q1FY22 vs 20/15% in FY21/20 respectively. The share of blended cement production remains north of 90%. Premium cement share in trade sales also remained at 50%+, boosting the margin. Thus, the unitary EBITDA rebound 9% QoQ to INR 997/MT, moderating the impact of lower sales. Continued reduction of old debt drove down interest cost QoQ/YoY.

Capex update and outlook: BCORP's greenfield project in Maharashtra (3.9mn MT) will get operational by Q4FY22. The brownfield SGU (0.7mn MT) in Kundaganj (UP) is expected in FY23E, thereby increasing the total capacity to 20.3mn MT. Thereafter, BCORP will take up new projects to increase its capacity to 25mn MT. We continue to like the company for its large retail presence (80%+) in the lucrative north/central regions. It has also expanded the share of premium products to 50%+ since Q3FY21 vs ~40%in FY20. The share of low-cost green power has increased, owing to recent WHRS/solar power plant additions. It is also working on supply chain rationalization, which will further boost margins. We maintain our earnings estimates, target price and BUY rating on the company. We value BCORP at 8.5x Jun'23E consolidated EBITDA.

Shares of Birla Corporation Ltd. was last trading in BSE at Rs. 1361 as compared to the previous close of Rs. 1387.8. The total number of shares traded during the day was 18872 in over 2172 trades.

The stock hit an intraday high of Rs. 1391.8 and intraday low of 1340.9. The net turnover during the day was Rs. 25825716.

Source : Equity Bulls

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