Buy Birla Corporation; target of Rs 1360: Emkay Global Financial

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Emkay Global Financial's report on Birla Corporation

Birla Corporation’s (BCORP) consolidated EBITDA declined 29% YoY but increased 24% QoQ to Rs2.8bn, 7% below our estimates, owing to higher-than-expected cost inflation. Blended EBITDA/ton fell 31% YoY/~2% QoQ to Rs653 (Emkay est.: Rs700). Management mentioned that cost pressure is unlikely to ease and profitability is expected to remain under pressure in the near term. BCORP commenced cement production at the 3.9mt Mukutban plant in Apr’22 and management expects its operating parameters to reach optimum levels by FY23-end. The new plant is expected to support volume growth and help maintain BCORP’s volume market share. Besides, its aim to achieve a 30mt capacity by FY27E should dispel concerns about long-term growth, in our view. Maintain Buy.

Outlook

Factoring in higher opex/ton, we reduce our FY23-24 EBITDA estimates by 3% and cut our TP to Rs1,360 (from Rs1,400). Our DCF-based TP implies a 1-year forward EV/EBITDA of 9x.

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