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Targets Lean B/S over new CAPEX

Result Synopsis

Birla Corporation (BCORP) reported in-line revenue, registering a growth of +9% y/y, primarily aided by a volume increase of +12% y/y, although NSR moderated by 3% y/y in Q1FY24. Premium sales contributed 54% of trade sales which is 76% of total sales. With gradual stabilization of Mukutban, the production cost declined by 48% y/y during Q1FY24. Overall, the total cost/te softened by 3% y/y as power & other costs/te declined by 26/10% y/y but it stayed 3% above YSECe because of elevated RM cost. Healthy volume & easing cost led EBITDA to grow by +15% y/y resulting in Rs675/te (v/s YSECe Rs750/te). While the Net profit declined by 3% y/y to Rs597mn due to increasing depreciation & interest outgo

BCORP plans to improve efficiency through higher usage of AFR and increasing consumption from captive coal mines. Also, BCORP is investing in WHRS/RE which will fulfill 22% of total power requirement. Additionally, the higher push for blended/premium products will drive incremental dispatches & efficiencies. We maintain our volume estimates at 11% CAGR over FY24-25E considering the rampup of Mukutban (3.9MTPA) coupled with strong demand momentum in its key markets (UP/MP & West). Therefore, the higher utilization & clinker factor of Mukutban coupled with cost-optimization through WHRS, Railway siding, and better fuel-mix will stabilize the operating cost further leading to overall margin accretion. Net Debt/EBITDA peaked at 4.7x in FY23 due to the recent expansion and with weak profitability. However, we believe BCORP to generate OCF of Rs21bn over FY24- 25E, which will deleverage B/S as management has no plan for future expansion as of now. Therefore, we believe Net Debt/EBITDA will come down to 1.8x by FY25E. Hence, we maintain our TP of Rs1368, valuing the stock at 8x EV/EBITDA on the FY25E with ADD rating

Result Highlights

* Volume came at 4.4MT (in-line) up by 12% y/y and flat q/q due to unseasonal rainfall in some core markets.

* As anticipated, NSR moderated by 3% y/y and 2% q/q due to a weak pricing environment in Q1FY24.

* Revenue came in-line to Rs24bn, registering a growth of 9% y/y, but declined by 2% q/q on account of sequential moderation.

* Total cost/te declined by 3% y/y and q/q both due to easing power & other cost. Although it stayed 3% above est. due to elevated RM cost in Q1FY24.

* Delivered EBITDA of Rs3bn, up by 15% y/y and 9% q/q translated to Rs675/te (v/s YSECe 750) up by 2% y/y and 9% q/q in Q1FY24.

* Reported a net profit of Rs597mn, declined by 4% y/y and 30% q/q due to higher depreciation and finance cost.

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