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Scalinsg up Mukutban plant operation

? Birla Corporation (BCORP) is seeing steady progress in its Mukutban plant operations, with the capacity utilization of the plant reaching ~46% by Sep’23-end. Moreover, there has been continued improvement in Oct’23. Capacity utilization is likely to reach ~65-70% by FY24-end. Variable costs have reduced by ~50% at this plant since its commencement of operations.

? The company is targeting EBITDA/t improvement of INR300-350 in FY24E led by cost saving initiatives and increasing share of premium products. It is ramping up coal extraction from captive coal mines to optimize fuel cost. It is investing in kilns to equip them to increase AFR usage. It is optimizing logistics cost by increasing direct dispatches from the plant and re-routing clinker distribution (including clinker swapping) to its grinding units.

? BCORP plans to increase grinding capacity to 25mtpa by FY26 from the existing capacity of 20mtpa. According to available data on environmental clearance (EC) received by the company, we believe the next phase of expansion will be in north/central India. We believe the company has EC for an extra 5.6mtpa/6.5mtpa clinker/cement capacity at its current locations. Apart from this, the company has announced a greenfield grinding capacity expansion of 1.4mtpa in Prayagraj, Uttar Pradesh, at an estimated capex of INR4b. This facility is likely to be commissioned by 1QFY26.

? We raised our EBITDA estimates by 3%/2% for FY24/FY25 driven by cost efficiencies, which led to increase in EPS estimate by 6%/3% for FY24/FY25. The stock currently trades at 8x/7x FY25E/26E EV/EBITDA, a lower valuation compared to its similar-sized peers. We value the stock at 9x Sep’25E EV/EBITDA to arrive at our TP of INR1,700 (EV/t of USD90). Reiterate BUY.

Reconstructed ramp-up strategy of Mukutban plant

? Commissioning and ramping up of the Mukutban plant witnessed multiple challenges in the recent past. Initially, during the construction phase, the project was affected by the slowdown caused by Covid-19. Subsequently, after the plant’s commissioning at the start of FY23, higher input costs and muted realization adversely impacted profitability.

? However, with the joining back of Mr. Ghose as MD and CEO from Jan’23, it has reconstructed ramp-up strategy of this plant (leveraging its well-known premium brand Perfect Plus, selling in the markets outside Maharashtra to expand its reach and increasing direct sales from the plant), and hit EBITDA positive in Mukutban in Mar’23

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