LIC-Backed Commodity Stock Is Pick of The Week By Axis Securities For Rs 1665 TP: Here’s Why

The primary commercial operation of Birla Corporation Limited (BCL), the flagship firm of the M.P. Birla Group is the manufacturer of cement. The cement sector of the corporation consists of 11 factories spread over 8 distinct regions. With an estimated market share of 12%, BCL is now positioned as one of the major companies in the Central India area, with a total cement-producing capacity of 20 million tonnes per annum (mtpa). The brokerage firm Axis Securities is bullish on the stock for a target price of Rs 1665 as its pick of the week. Birla Corporation is a LIC-backed stock which means that insurance giant Life Insurance Corporation of India held a 1.02% stake in Birla Corp during Q3FY23.

Investment Rationale Behind Birla Corporation According To Axis Securities

Healthy volume growth momentum: Birla Corporation Limited reported a volume growth of 13% in Q3FY24, primarily driven by improved demand and the ramp-up of the Mukutban plant. The scaling up of operations at Mukutban plant has led to a significant reduction in production costs. The company is focused on further enhancing the capacity utilization and realization at the Mukutban plant, which is currently operating at 60% capacity. With a capacity of 3.9 million tonnes per annum (mtpa), the Mukutban plant is expected to drive incremental volume growth for the company. We anticipate the company to achieve a volume growth of 10% CAGR over FY23-26E.

Improvement in EBITDA/tonne: To address cost pressures, Birla Corporation Limited has undertaken measures to optimize its fuel consumption mix. Furthermore, the decline in fuel prices, augmented contribution from Waste Heat Recovery Systems (WHRS) and Alternative Fuel Resources (AFRs), increased sales of blended and premium products from the Mukutban unit, and other cost-saving initiatives stemming from internal efficiencies are anticipated to bolster the company's EBITDA per tonne. We project the company's EBITDA per tonne to grow at a CAGR of 10% over the period FY24-FY26E, reaching Rs 980 per tonne.

Robust cement demand in the country: Cement demand in the country is expected to remain robust driven by higher capital expenditure on roads, railways and housing by the Central government and robust real estate demand. Increasing investment to develop the infrastructure of the country will act as a catalyst for higher cement demand in the country going forward. The industry is expected to grow at a CAGR of 8-9% during FY23-FY26E.

Birla Corporation Share Price Target

"Ramping up new Greenfield units in Maharashtra would significantly support the company's revenue and volume growth going ahead. Furthermore, we expect the company to grow Sales/EBITDA/APAT at a CAGR of 10%15%/43% during FY24-FY26E on the back of its strong position in the high-demand central region, higher sales of premium products, cost optimization measures, and increased cement demand. The stock is currently trading on 8x and 7x FY25E/FY26E EV/EBITDA and EV/tonne of 90$ and 85$ which is attractive compared to other similar peers in the industry. We recommend a BUY on the stock for a target price of Rs1665/- implying an upside of 10% from CMP," said Axis Securities in a note.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.