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Operating at healthy asset utilisation…

About the stock: Birla Corporation, the flagship company of the MP Birla Group, has 10 cement plants with total capacity of 15.6 MT. The company mainly operates in Central, North and East regions. Apart from cement, it also has a jute division.

* Cement is the largest contributor to revenue (over 90%) with the remaining coming from jute and other products

* It has mineral concessions in Madhya Pradesh, Maharashtra and Himachal Pradesh for further expansion. Its cement plants are relatively new and enjoy various tax incentives.

Q1FY22 Results: Birla Corp reported better results with EBITDA margin expansion of 126 bps QoQ despite cost pressure and lower sales volumes due to lockdown.

* Revenues were down 18% to | 1,749.1 crore led by sales volumes degrowth of 19.7% to 3.4 MT due to lockdown. YoY, revenues were up 5.7%

* EBITDA/t was up 9.1% QoQ to | 1026/t (vs. last quarter (LQ) EBITDA/t of | 940/t). EBITDA margin was at 19.6% vs. 18.4% LQ and 19.1% last year

* PAT of | 141.6 crore was down 43% QoQ due to tax adjustments

What should investors do?

Birla Corp’s share price has grown 1.8x over the past three years (from ~| 769 in August 2018 to | 1377 in August 2021).

* With a strong business outlook, we remain positive on the company and maintain our BUY rating

Target Price & valuation: We value Birla Corp at | 1,650 i.e.7.5x FY23E EV/EBITDA

Key triggers for future price performance:

* Operating at ~90% utilisation, it has a strong retail brand with premium product share of over 51% of sales by volumes through trade channels

* To reach close to 20 MT cement capacity by Q4FY22E post commissioning of 3.9 MT integrated cement capacity (2.6 MT clinker) at Mukutbandh, Maharashtra with total capex of ~| 2,744 crore  Aims to reach 25 MT capacity by 2025

* Debt levels to peak-out in FY22E

Alternate Stock Idea: Apart from Birla Corp, in our cement sector coverage we also like south based player Sagar Cement.

* Another low cost producer, expanding footprint in east/central region

* BUY with a target price of | 1700/share

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