Cement maker Birla Corporation share price rallied 42.7 percent in two consecutive sessions on May 27 after its March quarter earnings.
ICICI Securities upgraded the stock to buy with a revised target price of Rs 610 per share, implying 25 percent potential upside from Tuesday's closing levels.
"While the ongoing expansion may increase the debt burden in the medium term, the company’s healthy asset utilisations, healthy margin profile remain key positives, which will help the company to ride this medium term challenges," the brokerage reasoned.
The stock surged 20 percent in previous session and today it was trading at Rs 575.65, up Rs 87.85 or 18.01 percent on the BSE at 11:54 hours IST.
Birla Corporation reported a healthy Q4FY20 performance. While the topline declined YoY, its profitability improved. Revenues for the quarter declined 9.8 percent YoY to Rs 1,690 crore driven by a decline in volumes. Sales volumes for the quarter were at 3.3 MT, down 13 percent YoY, thus ending the year on a flattish note at 13.6 MT.
"Realisations continued to improve, growing 4 percent YoY to Rs 5,060 per tonne as the company continued to focus on blended and premium cement," ICICI Securities said, adding the company derived 81 percent of its sales from the trade channel and premium cement's share in trade sales improved from 37 percent in FY19 to 41 percent in FY20.
While revenues during the first lockdown were almost nil, manufacturing activities were allowed to resume production in a phased manner from April 20. All of Birla Corp's plants are currently up and running with all except Durgapur and Rae Bareli plants currently operating at 80-100 percent capacity utilisation.
"As Birla Corp operated at around 90 percent capacity utilisation in the last two years, we believe the company would end FY21 with a 9 percent volume decline due to loss in business in April," said ICICI Securities.
The brokerage feels the company's Mukutban greenfield integrated plant is expected to be commissioned in June 2021. Thus, led by
improvement in demand and ramping up of its new capacity Birla Corp should report 21 percent volume growth to 14.9 MT in FY22, and revenues over FY20-22 are expected to grow at 4.5 percent CAGR to Rs 7,545 crore, it said.
Profitability saw an improvement QOQ as well as YoY, led by higher realisations. The company clocked EBITDA margins of 20.4 percent, 17.2 percent, 16.5 percent in Q4FY20, Q3FY20 and Q4FY19, respectively.
EBITDA per tonne increased 28 percent YoY to Rs 1,032 per tonne, said the brokerage house. On an absolute basis, EBITDA increased 11 percent YoY to Rs 344.6 crore while PAT saw strong 52 percent growth YoY led by higher operating profits.
Further, the board has also approved raising Rs 300 crore via issue of NCDs and buyback of current outstanding NCDs subject to requisite approvals.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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