Buy Birla Corporation Ltd For Target Rs.1,100 by Motilal Oswal Financial Services Ltd
In-line EBITDA; cautions near-term demand outlook Modest pricing recovery; cost inflation weighs on margin
* Birla Corp. (BCORP)’s 2QFY27 operating performance was in line. Revenue grew ~9% YoY to INR24.2b; however, EBITDA declined ~25% YoY to INR2.3b. OPM contracted 4.4pp YoY to ~9%. EBITDA/t dipped ~30% YoY to INR502 (est. INR483). Adj. PAT declined ~59% YoY to INR375m (~48% beat, led by lower-than-estimated depreciation).
* Management indicated that pricing improved MoM in Oct’26 in the trade segment. However, recovery remains modest and its sustainability is uncertain amid intense competition. BCORP remains cautious on near-term demand, given deficient rainfall and drought-like conditions in parts of Maharashtra and Rajasthan, and potential disruptions from upcoming state elections in Uttar Pradesh. Fuel cost is estimated to increase by ~INR100/t QoQ in 3QFY27, with fuel cost rising to INR2.00-2.05/Kcal from INR1.81/Kcal in 2QFY27. To mitigate the higher fuel cost impact, it is increasing the green power share and ramping up production at its captive coal mine.
* We broadly retain our earnings estimates for FY27/FY28. We value the stock at 7x FY28E EV/EBITDA to arrive at our TP of INR1,100. Reiterate BUY.
Volume rises ~7% YoY; cement realization up ~2% YoY (flat QoQ)
* Consol. revenue/EBITDA/adj PAT stood at INR24.2b/INR2.3b/INR375m (+9%/-25%/-59% YoY and +6%/+7%/+48% vs. estimates). Sales volumes rose 7% YoY to 4.5mt (+3% vs. estimate). OPM contracted 4.4pp YoY to ~9%.
* Opex/t rose ~8% YoY to INR4,819 led by ~18%/4%/1% increase in variable costs/other expenses/freight expenses per ton. However, staff cost/t declined ~5% YoY. EBITDA/t declined ~30% YoY to INR502. Depreciation increased 3% YoY, while interest costs declined ~5% YoY. Other income fell ~4% YoY. ETR stood at ~27.9% vs. 30.9% in 2QFY26.
* In 1HFY27, revenue/EBITDA/PAT stood at INR50.6b/ INR5.7b/INR1.5b (+9%/- 13%/-27% YoY). OPM contracted 2.7pp YoY to ~11%. EBITDA/t declined 18% YoY to INR594. OCF stood at INR1.3b vs. INR2.1b in 1HFY26. Capex stood at INR3.1b vs. INR2.2b in 1HFY26. Net cash outflow stood at INR1.8b vs. INR105m in 1HFY26.
Highlights from the management commentary
* BCORP indicated that demand remained mixed across key markets, with earlier flood-related disruptions in Bihar and eastern UP gradually receding. However, deficient rainfall has resulted in drought-like conditions in parts of Maharashtra and Rajasthan, which could weigh on cement demand.
* Pricing pressure has extended beyond the mass-market segment to premium/A-category cement, with leading players diluting price premiums to defend market share. Industry consolidation has not translated into meaningful pricing improvement, particularly in Central India.
* It reiterated its earlier commissioning timelines for the upcoming capacity expansion, with the next major capacity addition estimated in FY29E.
Valuation and view
* BCORP’s 2QFY27 operating performance was in line with our estimates as higher-than-estimated opex/t was offset by higher-than-estimated volume and realization. Modest price hikes in the company’s core market of Central India, amid heightened competition and elevated fuel costs, are likely to keep margins under pressure in the near term. Further, volume growth is estimated to be subdued over FY27-28 as the company is already operating at optimum utilization and a new capacity addition is expected in FY29.
* We estimate a revenue/EBITDA CAGR of ~7%/3% over FY26-28. We project EBITDA/t at INR631/INR742 in FY27/FY28E vs. INR777 in FY26. We expect the company’s net debt to increase to INR29.3b by FY28E from INR20.8b in FY26 and the net debt-to-EBITDA ratio to increase to 1.9x from 1.4x in FY26. BCORP trades at 6.2x/5.6x FY27E/FY28E EV/EBITDA (vs. its long-term one-year forward average EV/EBITDA of 8.4x). We value the stock at 7x FY28E EV/EBITDA to arrive at our TP of INR1,100. Reiterate BUY.
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