Buy This Small-Cap Cement Sector Stock For Rs 1,305 Target Price: Axis Securities

Stock Outlook

The current market price (CMP) of the stock is Rs 1,121.45/share at the time of writing, 2.08% up from its previous close. The stock's 52-week low is Rs 823/share recorded on 20 June 2022, and the 52-week high is Rs 1,650/share recorded on 09 November 2022, respectively.

Returns on investment

The stock surged 0.98% in the past 1 week, 19.24% in the past 1 month and 26.85% in the past 3 months, respectively. Over the past 1 year, it has given a negative return of 16.42%. Whereas in the past 3 years it gave a positive return of 93.5% and in the 5 years it gave a positive return of 18.08%, respectively.

New Capacity, New Markets, and Strategic Expansion to Drive Future Growth

Birla Corporation Ltd. (Birla) recorded overall consolidated revenue of Rs 7,461 Cr in FY22, registering an excellent growth of 10% YoY. Robust revenue growth was driven by superior demand in Q4FY22, catering to which, the company's capacity utilization touched 108% during the quarter. It also reported the highest-ever volume of 14.2 MTPA during the year. 

The company's consolidated EBITDA in FY22 contracted by 480bps to 14.9% owing to higher energy cost during the year, which was up 32% on a per tonne basis YoY. 

The company's sustained thrust on premium cement paid off well during the year as it jumped to 51% of trade sales in FY22. The share of blended cement, too, was maintained at healthy levels of 91%. The company also introduced Birla RAKSHAK cement in the premium category during the year. The sale of blended cement grew by 4% YoY.

Key Highlights

Greenfield capacity at Mukutban (Maharashtra) was commissioned: The company's greenfield capacity of 3.9 MTPA at Mukutban (Maharashtra) was commissioned during the year, taking its total capacity to 20 MTPA. The commercial dispatch from the unit started in Apr'22. It is also enhancing the capacity of the Kundanganj unit to 3 MTPA from 2 MTPA and planning to set up a Grinding unit in Gaya of 1.2 MTPA. The company aims to take its total cement manufacturing capacity to 30 MTPA by 2030. 

The Debt/Equity Ratio inched up slightly: The company's Debt/Equity Ratio stood slightly higher at 0.70x against 0.65x in FY21 owing to an increase in debt as the company incurred Capex for a new facility at Mukutban (Maharashtra). 

Notable reduction in thermal power consumption: In FY21, the company managed to substantially reduce its thermal power consumption by shifting to renewable sources and solar power, whose share in the total consumption went up to 21.8% against 18.8% in FY21.

Key Competitive Strengths

a) High proportion of blended cement forming 91% of the total cement sales.
b) Dominant player in the demand-accretive central region.
c) Robust sales and distribution network.
d) Expanding market reach.
e) Focus on the sale of high-margin premium cement.

Strategies Implemented

a) Strengthened operations with sustainable manufacturing practices.
b) Bolstered market presence through capacity expansion.
c) Introduced new products in the market and channelised them effectively.
d) Implemented various customer-connect strategies to strengthen the company's efficient Sales & Marketing processes.
e) Leveraged technology for rapid stride 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) Increasing rural Income.
e) The government's supporting policies.

Key focus areas going ahead

a) Undertaking capacity expansion to consolidate market position.
b) Improving operational efficiencies through sustainable initiatives.
c) Undertaking digital transformation to achieve and augment operational excellence.
d) Maintaining financial prudence.

Outlook & Recommendation

According to the brokerage, "With the commercialization of greenfield capacity of 3.9 MTPA at Mukutban (Maharashtra), the company's future growth prospects look encouraging. With several cost rationalization initiatives underway along with better demand traction emerging from the government expenditures on various infrastructure schemes, a strong position in the demand accretive central region, new capacity addition, and higher sale of premium products, we expect the company to register Volume/Revenue/EBITDA/APAT CAGR of 12%/18%/21%/37% over FY22- FY24E. The stock is currently trading at 10x and 6.5x FY23E and FY24E EV/EBITDA and EV/tonne of $71 and $66 respectively. We maintain our BUY recommendation on the stock and value the company at 7.5x FY24E EV/EBITDA to arrive at a target price of Rs 1,305/ share. The TP implies an upside of 17% from the CMP."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.