Buy Birla Corporation Ltd For Target Rs.1,345 by Choice Institutional Equities Ltd
Near-term pain, long-term positives
We maintain our BUY rating on BCORP while revising our target price downwards to INR 1,345/share (from INR 1,490), reflecting an earnings downgrade of ~5.6% for FY27E and ~2.6% for FY28E. The revision has factored in elevated input cost pressure due to geopolitical uncertainty and continued pricing weakness in Central India a key market where BCORP has a meaningful exposure
We estimate Q2FY27E cost to increase by ~INR 70–80/t QoQ, due to the full-quarter impact of higher energy cost. However, BCORP's high exposure to blended cement (~85% of volumes) and the trade segment (~80% of sales) limits its ability to fully pass on increased cost, given the muted price hike. Consequently, we estimate a net cost escalation of ~INR 55/t in Q2FY27E, which is projected to keep EBITDA/t at ~INR 675/t.
Despite near-term margin pressures, we remain constructive on BCORP, supported by:
1) Improving industry pricing outlook and sector tailwinds
2) Capacity expansion plans to increase capacity by 6.2 Mnt to 27.5 Mnt by FY29E
3) Higher contribution from premium products to improve realisation
We expect BCORP’s EBITDA to expand at a CAGR of 8.7% over FY26– 29E, driven by volume growth assumptions of 5.0%/6.0%/8.0% and realisation growth of 2.5%/1.0%/0.5% for FY27E/FY28E/FY29E, respectively.
We derive our 1-year forward target price of INR 1,345/share using the EV/CE valuation framework and assign an EV/CE multiple of 1.0x on FY28E estimate.
Q1FY27 result: Higher operating expenses impact margin
BCORP reported Q1FY27 consolidated revenue and EBITDA of INR 26,465 Mn (+7.8% YoY, -6.7% QoQ) and INR 3,423 Mn (-1.3% YoY, - 32.9% QoQ) vs CIE estimate of INR 26,515 Mn and INR 3,957 Mn, respectively. Total volume for Q1 stood at 5.1 Mnt (vs CIE estimate 5.0 Mnt), up 5.4% YoY and down 7.3% QoQ
BCORP reported Q1FY27 consolidated revenue and EBITDA of INR 26,465 Mn (+7.8% YoY, -6.7% QoQ) and INR 3,423 Mn (-1.3% YoY, - 32.9% QoQ) vs CIE estimate of INR 26,515 Mn and INR 3,957 Mn, respectively. Total volume for Q1 stood at 5.1 Mnt (vs CIE estimate 5.0 Mnt), up 5.4% YoY and down 7.3% QoQ
Key Risks:
Geopolitical volatility risk: Possible prolonged geopolitical disruption could lead to an increase in petcoke price, resulting in higher input cost and margin pressure.
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