Buy Birla Corporation Ltd For Target Rs.1,560 by Axis Securities Ltd
Strong Volume Growth; Retain BUY
Est. Vs. Actual for Q1FY26: Revenue – INLINE; EBITDA Margin – MISS; PAT – MISS
Change in Estimates post Q1FY26 (Abs.)
FY26E/FY27E: Revenue: -2%/-2%; EBITDA: -4%/0%; PAT: -2%/0%
Recommendation Rationale
* Capacity Expansion Progressing Well: With earlier expansions stabilising at Mukutban (Maharashtra) and Chanderia (Rajasthan), and a strong foothold in central India, Birla Corporation Limited is entering its next growth phase. Total capacity would increase to 27.6 mtpa from 20 mtpa by 2028–29. This will involve expanding an integrated unit and setting up three new grinding units in Prayagraj (1.4 mtpa), Gaya (2.8 mtpa), and Aligarh (2 mtpa). Additionally, a Clinker grinding unit of 3.7 mtpa will be set up at the existing unit at Maihar, MP. The ongoing Kundanganj expansion remains on track. We forecast volume growth of 7% CAGR over FY25-27E.
* Performance Improvement YoY: During the quarter, the company reported EBITDA/tonne of Rs 724, up 23% QoQ, driven by better realisation YoY. The cost of cement production remained flat YoY to Rs 4,400/tonne. Current prices are similar to Q1FY26 exit prices. Consequently, we pencil in EBITDA/tonne growth of 13% CAGR over FY25-FY27E at Rs 855/tonne.
* Robust Cement Demand in the Country: Cement demand in the country is expected to remain robust, driven by increased capital spending by the central government on roads, railways, housing, and strong real estate demand. Moreover, rising investment in infrastructure development is anticipated to act as a catalyst for higher demand. The industry is projected to grow at a 7-8% CAGR during FY24-27E.
Sector Outlook: Positive
Company Outlook & Guidance: Pricing is expected to remain dynamic, reflecting ongoing market conditions. We expect cement demand to grow at a CAGR of 6–7% over the next few years. To strengthen its leadership in high-growth markets, the company is entering the next phase of expansion. New capacity additions will boost profitability and reduce lead distances, with grinding units strategically located closer to key markets.
Current Valuation: 9x FY27E EV/EBITDA (Earlier Valuation: 9x FY27E EV/EBITDA).
Current TP: Rs 1,560/share (Earlier TP: Rs 1,560/share)
Recommendation: We maintain our BUY recommendation on the stock.
Alternative BUY Ideas from our Sector Coverage: UltraTech Cement Ltd (TP-13,840/share),
Dalmia Bharat (TP-2,550/share), ACC Ltd (TP-2,260/share)
Financial Performance
BCL reported a positive set of numbers, with Volume/Revenue/EBITDA/PAT growing at 9%/12%/36%/267% YoY. The company reported a profit of Rs 120 Cr compared to Rs 33 Cr in the previous year. While volume growth was above our expectations, sales growth was in line, but EBITDA, EBITDA margin and PAT growth were below expectations on the back of lower realisation QoQ as pricing in its main operating region, Central India, was muted.
Cost/tonne remained largely flat YoY/QoQ to Rs 4,400/tonne. BCL’s EBITDA/tonne stood at Rs 724, up 23% YoY. The company reported an EBITDA margin of 14.1%, compared to an estimated 16.4% and 11.8% YoY. Sales volumes for the quarter increased by 9% YoY to 4.8 mntpa. Blended realisation stood at Rs 5,124 per tonne, down 4% QoQ but increased by 2% YoY.
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SEBI Registration number is INZ000161633
