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Capacity expansion to boost growth; maintain buy

* BCORP benefitted from higher sales volume and lower opex, which led to a 23% rise in EBITDA and 3.2pp improvement in OPM. Adjusted EBITDA stood at Rs3.6bn. OPM at 20.4% was in line with our estimate. Capacity utilization of its plants rose 4pp yoy to 92%.

* Key positives: 1) 29% yoy sales growth in premium products; 2) one of the best capacity utilization in the industry; 3) Rs730mn reduction in gross debt in 9MFY21 despite Rs7.3bn additional debt for new project; 4) 25.4% yoy/4% qoq reduction in interest expense as borrowing costs fell 1pp yoy. Volume grew 3.5% yoy. Realization fell 2.2% qoq.

* BCORP aims to achieve 25mt capacity by CY25. The 3.9mt Greenfield plant at Mukutban, Maharashtra, is likely to be commissioned by Q3FY22. Brownfield expansion of clinker capacity (0.4mt) at Chanderia, Rajasthan, will be completed in Q1FY22. Kundanganj, UP expansion plan has been revived after being kept on hold due to Covid-19 issues.

* We raise FY21-23E EBITDA by 1-3% on higher volumes. We like BCORP due to 1) its capacity addition plans and 2) cost-saving initiatives - solar power plants and coal mining through acquired blocks. Maintain Buy on the stock.

Lower opex and higher sales volumes boost profits: BCORP benefited from lower opex (lower variable due to a decline in RM costs and employee costs) and higher sales volumes in Q3. Sales volume grew 3.5% yoy, leading to higher capacity utilization of 92% (up 4pp yoy). Sale of premium products was up 29% yoy and accounted for 53% of trade sales (up 12pp yoy). Cement realization was up 0.6% yoy, though it was down 2.2% qoq as cement prices came under pressure in Q3. Revenue from the Jute business increased 31.7% yoy. Opex/ton fell 3.3% yoy due to a 10.5% yoy decline in variable cost/ton (impact of low RM costs). Employee expense/ton declined 5.2% yoy. Freight cost was up 1.4% yoy/3.2% qoq. Lower opex and higher sales volumes led to 23% yoy growth in EBITDA with 3.2pp improvement in OPM. EBITDA/ton stood at Rs992 vs. Rs850/Rs1,154 in Q3FY20/Q2FY21. The Jute business reported EBIT of Rs58.6mn vs. Rs43.7mn in Q3FY20. Lower interest rates (down 1pp yoy) and debt reduction (Rs41bn vs. Rs42.3bn at Mar’20) led to a 25.4% yoy decline in interest expense. Adjusted profit was up 83.4% yoy

Maintain Buy considering capex plans and cost-saving initiatives: We raise FY21-23E EBITDA by 1-3% on higher volumes. BCORP operated its plants at much higher capacity utilization of 87% in FY20 despite volume loss in Mar’20. The company plans to increase its capacities by 5.1mt through 1) Greenfield unit of 3.9mt at Mukutban, Maharashtra, by Q3FY22, and 2) grinding capacity expansion of 1.2mt at its Kundanganj, UP plant. It will increase clinker capacity at Chanderia, Rajasthan plant by 0.4mt through debottlenecking. We believe that capacity expansion in Maharashtra will help the company in geographical diversification. It will benefit from cost-saving strategies: 1) solar power plants will help cut cost by Rs10/ton; 2) coal mining from acquired mines will reduce cost by Rs68/ton; and 3) clinker transfer to existing grinding unit in Maharashtra from Mukutban will help achieve cost savings of Rs13/ton (on a blended basis). BCORP trades at 6.6x/5.6x FY22/23E EV/EBITDA and EV/ton of USD63, which appear attractive relative to its peers. We retain Buy with a TP of Rs930 (7x FY23E EV/EBITDA and post-tax incentives at a WACC of 11%). Key risks include a significant decline in cement prices and lower demand in key markets

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