Buy Birla Corp, target price Rs 854: Yes Securities

Net debt/EBITDA would hover around 3.2 times by FY22 – which the brokerage finds comfortable.

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Yes Securities has given a buy rating to Birla Corporation Ltd with a target price of Rs 854 based an implied EV/EBITDA multiple of 8 times on FY22E Total volumes for the quarter came in at 3.35 million tonnes against a brokerage estimate of 3.44 million tonnes which was down by 13 per cent year on year due to lockdown measures. According to the brokerage, utilization level for the company remained sublime – at 93 per cent for the fourth quarter of FY20. All plants of Birla Corp except Raebareli and Durgapur have been ramped up to 80-100 per cent utilization level post lockdown relaxation in the beginning of May.

Due to the on-going Covid-19 pandemic, the brokerage has downgraded volume estimates by 18.1 per cent/6.3 per cent and EBITDA estimates by 14.1 per cent/8.6 per cent for FY21/FY22 respectively.

Investment Rationale


The stock has corrected by 45 per cent over the last 3 months- underperforming vis-a-vis other frontline cement stocks (-20 per cent over last 3 months), with key concern being the on-going capex plan and possible chances of significant bloating of balance sheet. According to the brokerage, despite factoring in a.) meagre volume/EBITDA CAGR of 4 per cent/1 per cent over FY20-FY22, b.) no subsidies to be received over next 2 years and c.) capex of ~Rs 20 bn over FY21-FY22, net debt/EBITDA would hover around 3.2 times by FY22 – which it finds comfortable. Currently Birla Corp is trading at EV/EBITDA at 5.5 times and EV/te of $52 on FY22E. Taking an average of EV/EBITDA and DCF derived values, the brokerage has set a target of Rs 854/share.

Risk: In case of a second wave of Covid-19 spread, demand and pricing outlook would be severely hampered.

Financials


For the quarter ended March 31, the company reported consolidated sales of Rs 1689.97 crore, down -1.46 per cent from last quarter sales of Rs 1715.05 crore and down -9.76 per cent from last year's same quarter sales of Rs 1872.76 crore. The company reported net profit after tax of Rs 194.73 crore in the latest quarter.
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Promoter/FII Holdings

Promoters held 62.89 per cent stake in the company as of March 31, 2020, while FIIs held 4.17 per cent, DIIs 15.32 per cent and public and others 17.63 per cent.
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