Buy Birla Corporation Ltd For Target Rs.1,560 by Axis Securities Ltd
Outlook Remains Positive; Retain BUY
Summary
Aims to Reach the Capacity of 28 MTPA: The company is scaling up its cement production capacity from 20 MTPA to 28 MTPA by FY27-28 to meet the growing demand, which is in line with the projected growth in the economy and cement consumption. The expansion plan includes setting up three new grinding units along with capacity enhancements at the existing Maihar and Kundanganj plants. These initiatives will further strengthen its position in its core markets, where operations are already running at over 100% capacity. Additionally, the expansion is expected to enhance profitability through reduced lead distances and improved supply chain efficiency
Increased Sales of Premium Cement: The company delivered consistent sales growth and maintained its strong market share in the premium segment. Premium cement accounted for 59.5% of sales through the trade channel. Full-year sales of premium cement reached 7.6 Mn tonne, marking the highest ever, up 11% YoY.
Cost Optimisation Initiatives: The Company launched Project Unnati, an initiative focused on driving profitability-led growth. Built on five core pillars—profitable revenue growth, cost optimisation, sustainable growth, strengthening presence in right-to-win markets, and deeper channel engagement—Unnati has already delivered tangible outcomes. During the year, it generated savings of Rs 37 Cr, contributing meaningfully to improved profitability.
Key Highlights
* Decline in Revenue/EBITDA/PAT: The company's Revenue/EBITDA/PAT contracted by 5%/15%/30% in FY25. This declining growth was driven by lower realisation and subdued demand witnessed during H1FY25. Capacity utilisation reached 91% during the year. Overall, cement realisation was down by 7% during the year.
* Greenfield Capacity at Mukutban (Maharashtra) Ramping Up Well: Mukutban unit in Maharashtra delivered a strong turnaround in FY24-25, significantly boosting profitability. With the successful scale-up of production and cost rationalisation measures, the plant is now among the most efficient cement manufacturing units in India.
* Improvement in Net Debt: Net debt was reduced to Rs 2,244 Cr from Rs 3,003 Cr, while the cost of borrowing declined by 35 bps to 7.6% during the year
Key Competitive Strengths
a) High proportion of blended cement forming 81% of the total cement sales; b) Dominant player in the demand-accretive central region; c) Robust sales and distribution network; d) Expanding market reach, and e) Focus on the sale of high-margin premium cement.
Strategies Implemented
a) Ramped up Mukutban Greenfield unit; b) Increased use of green energy; c) Implementation of Project Unnati and Shiker for profitable growth and cost optimisation; d) Leveraged technology for rapid strides in the digital transformation journey.
Growth Drivers
a) Housing for All; b) Real Estate Growth; c) The government’s keen focus on infrastructure development, including roads, highways, metros, airports, irrigation, and water projects; d) Proactive policy support by the government
Key focus areas going ahead
a) Optimise the performance of Mukutban Unit; b) Improve operational efficiencies through sustainable initiatives;c) Undertake digital transformation to achieve and augment operational excellence; d) Maintain financial prudence
Outlook & Recommendation:
The company’s overall performance in FY25 was subdued due to weaker cement prices. However, on the positive side, sales volumes improved as the Mukutban plant ramped up successfully and is now fully established. Capacity utilisation also reached an impressive 91% during the year, while lower operational costs helped offset the impact of subdued prices. Looking ahead, Birla Corp plans to expand its capacity to 28 MTPA by FY27-28, positioning itself to sustain and grow its market share. Cement demand is expected to remain resilient, supported by higher government spending on infrastructure, housing demand under the PM Awas Yojana, and continued momentum in the real estate sector. We maintain our BUY recommendation on the stock and value the company at 9x FY27E EV/EBITDA to arrive at a target price of Rs 1,560/ share, which implies an upside of 20% from the CMP.
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