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Improved NSR unable to offset fuel costs

Result Synopsis

Birla Corporation (BCORP) reported mixed bag performance. BCORP registered volume growth of 17% y/y to 3.93MT (YSEC est. 4.05MT) as Mukutban unit commercialized. Whereas, +7% y/y (+5% q/q) higher NSR was not sufficient to mitigate the increase in cost/te by +18% y/y (+6% q/q) resulting in Blended EBITDA/te to Rs660 declined by 36% y/y (+1% q/q; YSEC est. Rs707) in Q1FY23. To mitigate the impact of the fuel prices (imported coal/pet coke), BCORP ramped up production from its captive coal mine (Sial Ghoghri) has lowered the dependence over imported coal & Pet coke. Additionally, company has taken several steps to reduce costs: 1) Use of Alternative Fuel & Raw materials (AFR) was increased across all plants. AFR usage stood at 12% of total fuel consumption in 1QFY23 (v/s 4% in Q1FY22). 2) Reduction in landed cost of fly ash by increasing wagons transportation (Rs437/te in Q1FY23 from Rs472 in Q1FY22). 3) Consistently raising its share of renewable energy (WHRS & solar) scaled up to 22.8% in Q1FY23 against 22.3% in Q1FY22 v/s 21.8% in overall FY22. We believe with the newly commissioned 3.9MTPA of Mukutban plant in Maharashtra the volumes to grow at 15% CAGR over FY23-24E. Additionally, the demand from its key markets (Uttar Pradesh) set to improve given the infra project push by the state/central government. Recent CAPEX peaked the Net Debt/EBITDA to 3.3x in FY22, while we believe BCORP to generate healthy operating cash flow of Rs22bn over FY23-24E, would help to deleverage its B/S and lower the Net Debt/EBITDA to 1.7x by FY24E. At CMP stock trades at 7/6x EV/EBITDA for FY23/24E. Therefore, we retain our BUY recommendation with a TP of Rs1500, valuing the stock at 8x EV/EBITDA on the FY24E.

Result Highlights

? Reported volume growth of +17% y/y and decline by +7% q/q to 3.93MT against YSEC est. of 4.05MT and NSR grew by +7% y/y and +5% q/q (+1% higher than YSEC est.) translates in revenue of Rs22bn (2% lower YSEC est.) up by +26% y/y (-3% q/q) in Q1FY23.

? Surge in power cost by +47% q/q and +41% y/y driven the cost/te to Rs4948 (+2% higher than YSEC est) had resulted in EBITDA/te to Rs660 (-36% y/y and flat q/q) v/s YSEC est. to Rs707/te in Q1FY23.

? Blended cement volume grew by +15% y/y in Q1FY23 and its share stood at 91% v/s 92% Q1FY22. Also, premium cement volume grew by +3% y/y in Q1FY23 and its share stood at 47% v/s 51% Q1FY22.

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