Strong beat across parameters
* Ramp-up of acquired assets drives volumes: Consol. volumes rose 4% YoY to 3.41mt (est. of 3.5mt), led by ramp-up of Reliance assets. Realizations rose 4% QoQ to INR4,554/t (est. of INR4,340) due to better pricing in the focus markets (east, central). Thus, net sales grew 15% YoY (+19% QoQ) to INR16.5b (est. of INR15b). It also received VAT incentives from UP government for prior periods.
* Cost efficiencies drive sequential profitability improvement: Power & fuel cost for Reliance assets fell 18% QoQ, as (i) BCORP was able to reduce its dependence on grid power for Reliance plants by installing WHRS and (ii) due to higher usage of captive coal from its mines. Profitability of S/A operations increased significantly QoQ, led by lower other expenses (3QFY18 saw high maintenance-related costs). Thus, consol. EBITDA/t stood at INR735 (est. of INR457; +3% YoY; +61% QoQ), leading to EBITDA of INR2.5b (est. of INR1.6b; +7% YoY; +81% QoQ). Adj. PAT stood at INR1.3b (est. of loss of INR38m).
* FY18 performance: Consol. volumes rose 23% YoY to 12.4mt led by ramp-up of Reliance assets. Realization stood at INR4,548/t, leading to net sales of INR57b (+32% YoY). EBITDA stood at INR8b (+29% YoY), while PAT fell 30% YoY to INR1.5b due to higher depreciation (+30% YoY) and interest cost (+36% YoY).
* Valuation view: BCORP’s consol. operations with capacity of 15.5mt are among the largest in the Satna cluster, with ~22% market share. Blended EBITDA/t profile for consol. operations improved substantially due to significantly higher profitability of Reliance Cement. BCORP, given its size and profitability, is trading at a significant discount to peers (both on EV/tonne and EV/EBITDA) and has strong potential for multiple re-rating. However, the key risk would be sustained lower profitability from its Chanderia operations. The stock trades at 8x/6x FY19/20E EV/EBITDA and EV/tonne of USD77/USD71 on FY19E/20E capacity. We conservatively value BCORP at INR1,020 – 9x FY20E EV/EBITDA, 15%-20% discount to peers (implies FY19 EV/tonne of USD95). Maintain Buy.
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