Buy Birla Corporation Ltd for the Target Rs. 1,560 by Axis Securities Ltd
Beat on All Fronts; New Capacity Announced
Est. Vs. Actual for Q4FY25: Revenue – BEAT; EBITDA Margin – BEAT; PAT – BEAT
Change in Estimates post Q4FY25 (Abs.)
FY26E/FY27E: Revenue: 1%/0%; EBITDA: 10%/0%; PAT: 21%/0%
Recommendation Rationale
* New capacity announced: 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. The Board, along with subsidiary RCCPL Private Limited, has approved a Rs 4,335 Cr investment to increase production capacity from 20 Mn tons to 27.6 Mn tons 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 at a CAGR of 7% over FY25-27E.
* Robust operating performance: During the quarter, the company reported EBITDA/tonne of Rs 1,017, up 85% QoQ, driven by lower costs, better realisation, and the benefit of operating leverage. The cost of cement production decreased by 3%/4% YoY/QoQ to Rs 4,345/tonne. Current prices are similar to Q4FY25 exit prices and are expected to sustain, subject to higher demand. Consequently, we pencil in EBITDA/tonne growth of 12% CAGR over FY25-FY27E at Rs 850/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. Rising investment in infrastructure development is anticipated to act as a catalyst for higher cement 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 FY26E EV/EBITDA). We roll over our estimate to FY27.
Current TP: Rs 1,560/share (Earlier TP: Rs 1,340/share)
Recommendation: We maintain our BUY recommendation on the stock.
Alternative BUY Ideas from our Sector Coverage: UltraTech Cement Ltd (TP-13,510/share), Dalmia Bharat (TP-2,260/share), Ambuja Cements (TP-655/share), ACC Ltd (TP-2,420/share)
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