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Cost efficiency and regional benefits to lead margin expansion. Reinitiating with BUY

Result Synopsis

In 2QFY25, BCORP reported a weak set of numbers. Lower volume, coupled with weak realizations, resulted in revenue contraction of approximately 15% YoY and 11% QoQ. Intense seasonal impact dampened the volume by 5% YoY and 9.4% QoQ despite BCORP’s strong presence in demand-rich regions, such as Central India. Realization was down by 10.1% YoY and 1.7% QoQ due to seasonal and pricing pressures stemming from intensified competition from larger players. EBITDA in absolute terms declined by around 38.7% YoY and 31.4% QoQ, while the margin slipped to 9.1% in 2Q, compared to 11.8% in 1Q FY25, mainly due to weak top-line growth and a marginal increase in operating costs. EBITDA per ton stood at Rs446 (a decline of 35.4% YoY and 24.3% QoQ) due to a high base effect, coupled with a marginal increase in operating expenses per ton (a drop of 6.4% YoY but an increase of 1.4% QoQ). A maintenance shutdown during the quarter was among the reasons for increased raw material costs. Employee, packing & forwarding, and other expenses per ton increased by 19.2%, while freight costs were controlled, declining by 5.6% QoQ due to reduced lead distances.

Based on our analysis (Ref: Investment Rational Pg. 2-5), we believe the company is wellpositioned to perform in the future despite challenges in the industry, such as pricing pressures and intensifying competition. BCORP, a major player in Central India, has a capacity of 20 MTPA and is targeting 25 MTPA by FY27E. Its capacity utilization of 86% is significantly higher than the industry average of 68-70%. The early ramp-up of the Mukutban plant (3.9 MTPA) is well-suited to cater to lower Maharashtra and new markets in Telangana. Currently, the Mukutban Plant’s capacity utilization is around 60% and is expected to reach 70-75% in the near term. Aside from the Eastern region (2.1 MTPA in West Bengal), prices in BCORP’s key markets (Central and Western) remain stable, providing confidence. Additionally, the company is increasingly focused on premium segment sales (around 61% vs. 50% in 1Q FY25), where prices are Rs20-30 higher than regular cement, adding value to the top line. BCORP is one of the highest incentive-based cement players in the industry (around 1.7% of total revenue), with expectations for this to increase further upon the commencement of the Kundanganj and Prayagraj grinding units. Cost initiative projects, such as Unnati & Shikar, are expected to drive cost savings of Rs70 per ton in 2HFY25, with a near-term target of Rs100 per ton. Moreover, the company’s low dependency on pet coke is advantageous, as it currently has enough captive coal mining to meet around 20% of its coal requirement (Sial Ghoghri + Bikram). Following the operational commencement of Brahampuri and Marki Barka, this is expected to increase to 60%.

Outlook & Valuation:

At the current market price, the stock is trading at 6.5x forward EV/EBITDA, near its 52- week low. We anticipate tepid industry growth in FY25E, impacting BCORP due to pricing pressures and regional challenges. However, we expect gradual improvement from FY26E onwards. We are projecting a CAGR of 1.1%/3.4%/14.8% for Revenue/EBITDA/PAT over FY24-FY27E and are valuing the stock at 9x Sep’26E EV/EBITDA to arrive at a target price of Rs1425 with a BUY rating. Any price decline, subdued demand and delay in capacity expansion is key downside risk to our recommendation.

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