Buy Birla Corporation - Motilal Oswal

• Mkt Cap USD0.7b
• CMP Rs360
• Buy

Birla Corp's 1QFY11 operational performance was in-line with our estimates, with EBITDA of Rs1.65b (v/s est 1.65b). However, lower other income and higher interest cost impacted reported PAT to Rs1.18b (v/s est Rs1.29b). Key highlights include:

- Volume growth of 23% YoY (~10% QoQ decline) to 1.49mt. Realizations were higher by 1.2% QoQ (~5.6% YoY decline) at Rs3,510/ton.

- However, EBITDA margins were flat QoQ (~720bp YoY decline) to 28.6% and EBITDA declined by 5% QoQ (~6% YoY) to Rs1.65b.

- Higher interest cost and lower other income impacted PAT to Rs1.18b (~24% YoY & 14% QoQ decline).

- Enhanced capacity expansion plan at Rajasthan from 1.2MT to 2.7MT, taking total capacity to 10.8MT by mid-FY13.

- Our estimates are marginally downgraded by 1.9% to Rs61.3 for FY11 and by 1.3% to Rs63.3 to FY12.

The stock trades at extremely attractive valuations of 5.9x FY11E EPS, 2.5x FY11E EV/EBITDA and at EV/ton of US$46 (on expanded capacity of 7.5MT), which is at a significant discount to its comparable peers. Maintain Buy with target price of Rs467 (~4x FY12E EV/EBITDA).

Source : Equity Bulls

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