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Higher costs dent performance; debt increases further

Announces changes in the leadership team

* BCORP’s 2QFY23 performance was below estimate due to lower sales volume (-4% v/s estimate) and higher opex (+5% v/s estimate). Consol. EBITDA stood at INR940m v/s estimated INR1.9b and EBITDA/t was at INR258 v/s estimated INR496. Net loss was at INR565m v/s estimated loss of INR36m.

* Mr. Arvind Pathak has stepped down from the position of MD & CEO. Mr. Sandip Ghose (having a rich experience of 39 years with 13 years in the cement industry), Ex-Chief Operating Officer of the company will join from 1st Dec’22 and will be the MD/CEO effective 1st Jan’23 for a three-year period.

* Lower profits in 1HFY23 due to the delay in stabilization of Mukutban plant lead us to cut our EBITDA estimate for FY23/24 by 17%/8%. Profit estimates are being reduced by 56%/18% for FY23/24. BCORP’s valuation at 8.7x/7.1x FY24E/25E EV/EBITDA looks reasonable. Maintain BUY.

Weak volume and higher Opex/t impact profitability adversely???????

* BCORP’s revenue/EBITDA stood at INR20b/INR940m (+18%/-65% YoY and 3%/50% below our estimates). Cement realization rose 6% YoY (-4% QoQ). Sales volume was up 11% YoY (- 7% QoQ) to 3.64mt (-4% v/s our estimate).

* Blended cost of production/t grew 20% YoY, led by a 25%/20%/15% increase in variable cost/other expenses/freight cost, respectively. Employee cost was up 18% YoY to INR1.3b. EBITDA/t declined 68% YoY and OPM fell 11pp YoY.

* For 1HFY23, revenue grew 22% YoY led by 14%/7% growth in realization/ sales volume. However, cost pressures (Opex/t up 19% YoY) led to 42% YoY decline in EBITDA to INR3.5b. OPM fell 9.3pp YoY to 8.4% and EBITDA/t declined 49% YoY to INR467. Adjusted PAT was down 92% YoY to INR171m.

* CFO turned negative at INR2.8b v/s INR4.6b in 1HFY22, partly due to increase in working capital by INR4.6b. Consolidated gross/net debt stood at INR44.7b/INR41.7b v/s INR42.1b/INR34.7 in Mar’22, respectively.

Highlights from the management commentary

* Mukutban plant commissioned in Apr’22 is estimated to produce 1mt cement in FY23. EBITDA/t excluding Mukutban would have been at INR409.

* The kiln at Mukutban plant was shut for a substantial period due to weak demand (~26% capacity utilization in 2QFY23). Further, cost was higher due to dependence on imported coal and higher logistics cost. With commissioning of railway siding and WHRS (from Dec’22), usage of petcoke and GST incentives from FY24, performance of this unit is likely to improve.

* AFR contributed 9% to fuel consumption v/s 6% in 2QFY22. This is expected to increase to ~12% going forward. Green energy share was at 20.6% in 2Q.

Valuations attractive; maintain BUY

* BCORP’s profitability has been impacted adversely due to a delay in stabilization of Mukutban plant, which led to higher-than-estimated opex. We estimate margins to improve in 2HFY23 (OPM at 11.3% v/s 8.4% in 1HFY23).

* BCORP’s net debt has increased in 1HFY23 due to completion of Mukutban Project and higher working capital requirement. We estimate net debt to be at INR38.8b by FY23-end v/s INR41.7b as of Sep’22.

* BCORP trades at 8.7x/7.1x FY24E/FY25E EV/EBITDA (v/s one-year forward EV/EBITDA of 8x over FY14-22), a much lower valuation than the average for companies with similar capacities. We maintain our BUY rating with a TP of INR1,210 (v/s INR1,275 earlier), based on 9x Sep’24 EV/EBITDA (earlier Mar’24).

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