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Key Result and Presentation highlights

* Birla Corp delivered volume growth of 3.2% y/y for Q3FY21 – at 3.55 MT vs our est. of 3.53 MT. Capacity utilization for the company stood amongst the highest in the industry at 92% during the quarter. Premium segment sales continue to be on the rise – at 53% of trade channel sales vs 41% in Q3FY20.

* Net sales realization/te stood at Rs 5,005 (+0.4% y/y and ‐1.4% q/q) vs our est. of Rs 5,004.  

* Net sales for the quarter came in at Rs 17.76 bn; growing by 3.6% y/y – vs our est. of Rs 17.66 bn .  

* Excluding one‐off charges, BCORP’s EBITDA stood at Rs 3.62 bn (vs our est. of Rs 3.56 bn) which was up by 23% y/y and down 5.3% q/q. Operational EBITDA/te was also broadly in‐line with our estimates at Rs 1,021, witnessing an increase of ~19.2% y/y. On the back of efficiency improvement measures and softer input costs on y/y basis, BCORP’s clinker production cost/te has declined by 10.2% y/y.

* In terms of capacity addition, BCORP plans to commission 3.9 MTPA IU at Mukutban, Maharashtra by Q3FY22E and 1.2 MTPA GU at Kundanganj, UP by Q1FY23E.

* Total debt of BCORP stood at Rs 40.99 bn vs Rs 41.72 bn in Q3FY20 despite investing a sum of Rs 7.32 bn for Mukutban plant – showcasing strong cash flow generation by the company. Borrowing cost stood at 7.82% in Q3FY21 – 104 bps lower than Q3FY20.

Valuation and Outlook

* Post scaling up from 15.4 MTPA currently to 20.5 MTPA by Q1FY23E, BCORP plans to further scale up to 25 MTPA by 2025. We believe the company would increase capacity by ~65% over FY21E‐FY25E with 85% of capex being self‐ funded.   

* We keep our financial projections intact with expectation of volume/EBITDA CAGR at 14.7%/8.8% respectively over FY21E‐FY23E. Further, we expect increase in net debt to be limited to ~Rs 4 bn (bear case scenario) over FY20‐FY23E with peak net debt/EBITDA of 2.74x in FY21E which should decline to 2.34x by FY23E translating into balance sheet stability.    

* In terms of valuations, at CMP of Rs 721, BCORP is trading at EV/EBITDA of 5.8x and EV/te of ~$65 on FY23E. We assign an EV/EBITDA multiple of 8x on Sep‐22E and maintain our TP of Rs 1,108/share with potential upside of 54%. We maintain our BUY rating on the stock.  

Key Risk:

* Any adverse outcome of on‐going legal tussle w.r.t legacy would result into de‐ rating of the stock.

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