Buy This Small-Cap Cement Stock For 32% Upside, Reported Rs 736m PAT: Motilal Oswal

Stock Outlook & Returns

The shares of the company closed today at Rs 968.20 apiece, after a fall of 2.35%. Currently, the stock is trading Rs 145.2 above the 52 week low of Rs 823 apiece and Rs 681.8 below the 52 week high of Rs 1650 apiece, respectively.

Over the past 1 week, the shares of the company have fallen 2.16%. Whereas, in the past 1 month, the stocks moved up by roughly 6.1%. In the past 1 year, the share price has fallen further by 29.72%. In the past 3 years, the share has given a positive return of 61.33% and a negative return of 0.18%, respectively.

The TTM PR ratio is 18.71. PB ratio is 1.24. TTM EPS is Rs 51.76. The dividend Yield is 1.03% and the face value is Rs 10. ROE is 6.58%. The equity debt is 0.70.

Birla Corporation is a small cap cement stock having a market capitalization of Rs 7455 crore.

Cost escalation hurts profitability; EBITDA/t at Rs 660 

Birla Corporation's revenue/EBITDA/adjusted PAT stood at Rs 22b/Rs 2.6b/Rs 736m (+26%/-25%/-48% YoY and 4%/12%/76% above our estimates), respectively. Cement realization improved 8% YoY/5% QoQ. Sales volume rose 17% YoY to 3.93mt. Revenue from the Jute segment grew 10% YoY (down 10% QoQ).

Blended cost of production/t grew 18% YoY, led by a 34% YoY increase in variable cost (due to higher power and fuel prices) and 7% rise in freight cost in 1QFY23. Other expenses/t grew 12% YoY/17% QoQ partly due to start-up cost of the new plant and increased spending on coal mining.

EBITDA declined 25% YoY and OPM contracted 8pp YoY to 12%. EBITDA/t stood at Rs 660 v/s Rs 1,026/Rs 653 in 1QFY22/4QFY22, respectively. Interest expense and depreciation jumped 10% and 16% YoY, respectively. Net debt stood at Rs 37b v/s Rs 34b as of Mar'22. Average cost of borrowing was down 65bp YoY to 6.68%.

Highlights from the management commentary

Capacity utilization (CU) stood at 88% (including Mukutban capacity) v/s 90% in 1QFY22. On a like-for-like basis, CU reached 101% in 1QFY23. Coal extraction from captive mine at Sial Ghogri was 19% above its quarterly rated capacity. AFR usage stood at 12% of fuel consumption v/s 4%/7% in 1QFY22/FY22, respectively.

Valuation attractive; BUY for Rs 1,275

Birla Corporation has been consistent with its capacity addition plans through both organic and inorganic routes. The management aims to expand the installed capacity to 30mtpa by CY27E (current capacity: 19.5mtpa). "We expect leverage to improve going forward (1.9x in FY24E v/s 2.8x in FY22). The management's continued focus on capacity expansion should drive a re-rating in its valuation multiples. BCORP trades at 7.4x FY24E EV/EBITDA (v/s one-year forward EV/EBITDA of 8x over FY14-22), at a much lower valuation than the average for peer companies with similar capacities. We retain our BUY rating with a revised Target Price of Rs 1,275 (up from Rs1,145 earlier), valuing it at 9x FY24E EV/EBITDA," the brokerage firm has said.

About - Birla Corporation Limited

Birla Corporation Limited is the flagship Company of the M.P. Birla Group. Incorporated as Birla Jute Manufacturing Company Limited in 1919.Late Mr. Madhav Prasad Birla, as Chairman of the Company, he transformed it from a manufacturer of jute goods to a leading multi-product corporation with widespread activities. Under the Chairmanship of Mrs. Priyamvada Birla, the Company crossed the Rs. 1,300 - crore turnover mark and the name was changed to Birla Corporation Limited in 1998.
After the demise of Mrs. Priyamvada Birla, the Company continued to consolidate in terms of profitability, competitiveness and growth under the leadership of Mr. Rajendra S. Lodha, late Chairman of the M.P. Birla Group. Under his leadership, the Company posted its best ever results in the years ended 31.3.2006, 31.3.2007 and 31.3.2008. The Company continued to record impressive growth in 2008-09 and 2009-10.