Buy Birla Corporation, target price Rs 1289: HDFC Securities

HDFC Securities has buy call on Birla Corporation with a target price of Rs 1289. The current market price of Birla Corporation is Rs 1107.2. Time period given by analyst is 6-9 months when its price can reach defined target.
Birla Corporation, incorporated in the year 1919, is a mid cap company (having a market cap of Rs 8513.33 crore) operating in Cement sector.

Its key products/revenue segments include cement, jute goods, royalty income, other operating revenue, export incentives and others for the year ended March 31, 2022.

Financials
For the quarter ended June 30, 2022, the company has reported a consolidated total income of Rs 2218.06 crore, down 4.95 per cent from last quarter total income of Rs 2333.54 crore and up 26.14 per cent from last year same quarter total income of Rs 1758.41 crore. Company has reported net profit after tax of Rs 61.92 crore in latest quarter.

The company’s top management includes Mr.Harsh V Lodha, Mr.Arvind Pathak, Mr.Vikram Swarup, Mr.Anand Bordia, Mr.Dhruba Narayan Ghosh, Dr.Deepak Nayyar, Mrs.Shailaja Chandra, Mr.Dilip Ganesh Karnik. Company has V Sankar Aiyar & Co. as its auditors. As on 30-06-2022, the company has a total of 8 crore shares outstanding.

Investment Rationale
Healthy pricing in north and central regions buoyed pricing by 5% QoQ in Q1FY23. High fuel prices (+20% QoQ), low utilisation, and stabilisation expenses of Mukutban drove up unitary opex by 6% QoQ. Adjusted unitary EBITDA (ex-Mukutban) recovered 15% QoQ to Rs744 per MT. Operating losses amid ramp-up of Mukutban during FY23 should drag down its FY23 EBITDA by ~10% (15% impact in Q1).

BCL has guided this plant to become EBITDA break-even by FY23 end. With major capex done, the brokerage expects gearing to cool off during FY23- 24E.

The brokerage likes BCL for its large retail presence in the lucrative north/central regions and various cost-cutting initiatives.

They believe investors can buy the stock in the range of Rs 1082-1095 band and add on dips to Rs 1007-1027 band (7.35x EV/EBITDA, $68 EV/MT), for base case fair value of Rs 1192 (8.25x EV/EBITDA, $76.5 EV/MT) and bull case fair value of Rs 1289 (8.7x EV/EBITDA, $81EV/MT).

Promoter/FII Holdings
Promoters held 62.9 per cent stake in the company as of June 30, 2022, while FIIs owned 4.34 per cent, DIIs 16.05 per cent.