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Analysts remain bullish on Birla Corporation, sees 60-110% potential upside after Q4

Yes Securities also has a buy rating on the stock with a target of Rs 854, implying 110 percent potential upside from current levels as EBITDA was in line with the estimates.

May 26, 2020 / 01:29 PM IST
India is the second largest cement producer in the world

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Shares of Birla Corporation rallied 10 percent intraday on May 26 as brokerage houses remained bullish on the stock and expect 60-110 percent potential upside after March quarter earnings.

The stock had corrected 53 percent during January 31 to May 7, but since then gained 20 percent till now. It was quoting at Rs 443.85, up 9.39 percent on the BSE at 11:54 hours IST.

Emkay Global has maintained its buy rating on the stock with a revised target price of Rs 647 (from Rs 469, upside potential is 60 percent), valuing it at 8x June 2022 EV/EBITDA estimates and post-tax incentives at a WACC of 11 percent, as it believes that capex and hence, the debt increase will be lower than its assumptions.

The brokerage raised its FY21-23 EBITDA estimates by 1-6 percent and factored in capex of Rs 3,680 crore for FY20-23 against Rs 4,200 crore earlier as 44 percent of the estimated capex for the Maharashtra plant has already been incurred.

Company's Q4 operating performance beat the estimates on lower variable costs (down Rs 275 per tonne YoY and Rs 246 per tonne QoQ). EBITDA stood at Rs 344.6 crore against estimated Rs 310 crore and EBITDA per tonne came in at Rs 1,036 versus estimated Rs 898, said Emkay.

Company's Q4FY20 profit grew by 51.9 percent YoY to Rs 194.7 crore on revenue of Rs 1,690 crore that declined 9.8 percent YoY. At operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 11.3 percent to Rs 344.6 crore and margin expanded 387 basis points to 20.39 percent in quarter ended March 2020.

Total volumes for the quarter came in at 3.35 million tonnes, down by 13 percent YoY due to lockdown measures. However, all plants of Birla Corporation except Raebareli and Durgapur have been ramped up to 80-100 percent utilization level post lockdown relaxation in beginning of May.

The Mukutban, Maharashtra, plant will be commissioned by June 2021. Expansion of Kundanganj, UP, grinding unit has been kept on hold.

Yes Securities also has a buy rating on the stock with a target of Rs 854, implying 110 percent potential upside from current levels as EBITDA was in line with the estimates led by stable pricing scenario, softening energy prices and efficiency improvement measures.

Further, Birla Corporation has financed entire capex for FY20 through internal accruals with current net debt at around Rs 3,290 crore and net debt/EBITDA at 2.47x (versus 3.5x in March 2019).

The stock has corrected by around 45 percent over last 3 months- underperforming as compared to other frontline cement stocks (down 20 percent over last 3 months), with key concern being the on-going capex plan and possible chances of significant bloating of balance sheet, said Yes Securities.

However, the brokerage reckoned that despite factoring in meagre volume/EBITDA CAGR of 4/1 percent over FY20-FY22, no subsidies to be received over next 2 years and capex of around Rs 2,000 crore over FY21-FY22, it expects company's net debt/EBITDA to hover around 3.2x by FY22 – which is comfortable. "Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 854 per share," it said.

While maintaining buy rating with a target of Rs 695 (implying 71 percent potential upside from current levels), Motilal Oswal also said valuation was attractive at 4.4x FY22E EV/EBITDA (30 percent discount to its 10-year average) and $48 per tonne of capacity (significant discount to replacement cost).

Birla Corporation plans to increase capacity by 25 percent over the next 15 months, which should support volume growth beyond FY22, and its 55 percent capacity is in Central India, which should aid pricing and margin, the brokerage feels.

"Despite eight days production lost, Birla Corp's EBITDA/PAT grew 11/52 percent YoY on higher realisation, operational and tax savings. The Kundanganj expansion has been postponed; the Yavatmal and Chanderia expansions will continue, keeping leverage high. The strong brand focus, cost-saving measures (WHRS/solar plant/ railway siding at Kundanganj) and rising blended/trade sales will aid," said Anand Rathi which retained its buy rating, and raised price target to Rs 650 (earlier Rs 588), implying 60 percent potential upside from current levels.

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.

Sunil Shankar Matkar
first published: May 26, 2020 01:03 pm

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