Buy Birla Corporation Ltd For Target Rs. 1,480 - Yes Securities
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Our View:
* Birla Corp during the quarter delivered volume growth of 24.5% y/y to 4.17 MT which was 6.5% higher than our estimates and in‐line with industry trends. Accordingly, capacity utilization for the company during the quarter stood at 108%. However, EBITDA was broadly in‐line with our estimates at Rs 3.92 bn which was up 14% y/y. Blended EBITDA/te came in at Rs 940 which declined by 8.6% y/y and 7.5% lower than our estimates due to higher than expected clinker cost.
* Company’s 4 MTPA greenfield plant at Mukutban, Maharashtra has witnessed some bottlenecks in commissioning on account of second wave of COVID (industry wide trend) and accordingly, BCORP now expects to complete the project by CY21 end post which total capacity of the company would increase to ~19.5 MTPA.
* BCORP’s sublime cash flow management continues as the company has incurred a cumulative capex of ~Rs 18 bn over the last two years without increasing their net debt. Absolute net debt remains stagnant at ~Rs 33 bn. Accordingly, net debt/EBITDA has declined from 3.5x to 2.43x over FY19 to FY21.
* Going ahead, although our volume estimates remain largely intact, we upgrade our EBITDA estimates by 3.2%/10.5% for FY22E/FY23E respectively. Accordingly, we factor in volume/EBITDA CAGR of 14.1%/13.7% over FY21‐FY23E. Further, we expect the CFI to sharply fall post commissioning of Mukutban plant and accordingly estimate that net debt/EBITDA should decline to 1.58x by FY23E.
* At CMP of Rs 1,043, BCORP is trading at EV/EBITDA of ~6.1x on FY23E. We assign an EV/EBITDA multiple of 8x on FY23E and arrive at TP of Rs 1,480/share with potential upside of 42%. We maintain our BUY rating on the stock.
* Key Risk: Further lockdowns across states due to second wave of COVID would hamper volume growth and timelines of capex commissioning.
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