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ICICI Direct Report
Investment Rationale:
Ramp-up of new cement capacity at Muktaban (Maharashtra) to drive volume growth with gaining access to new markets:
Birla Corporation Ltd. commissioned its new cement facility of 3.9 million tonne capacity at Muktaban (Maharashtra) in April 2022. With this new capacity, the company has expanded its reach into untapped markets of western region (Maharashtra and Gujarat) along with the earlier markets of Northern, Central and Eastern India.
Birla Corp achieved overall capacity utilisation of 81% in FY23 with volume growth of 10.6% YoY even though the new capacity commissioned in beginning of FY23.
With further ramp-up of this new facility, overall cement volumes to pick-up further with gaining access to newer growth markets of western India. We estimate volume compound annual growth rate of 8.2% over FY23-25E
Margins and profitability to improve sharply over FY24-25E led by operational efficiencies and improvement in capacity utilisation:
Birla Corp has taken critical steps to improve its operational efficiencies like sourcing of raw materials like limestone and fly-ash, usage of coal from its captive mine and increasing usage of captive power (including solar and waste heat recovery).
Moreover, with Government incentives entitled to Muktaban facility, lower fuel prices, focus on increasing share of premium products in total trade sales and further improvement in overall capacity utilisation, we believe that company's margins and profitability to improve significantly over FY24-25E.
We estimate blended Ebitda/tonne to improve to Rs 832/tonne in FY24E and Rs 959/ton in FY25E from Rs 491/tonne in FY23.
Rating and Target Price
With strong focus on improving overall capacity utilisation and operational efficiencies, we believe company's financial performance to improve significantly over FY23-25E (versus FY20-23).
We estimate revenue CAGR of ~10% over FY23-25E while Ebitda CAGR at ~51% led by sharp improvement in margins. Profit after tax is expected to grow exponentially by 19 times over the same period.
We expect substantial improvement in asset turnover, net-debt/Ebitda and return rations over the next two years.
Valuation at 7.2 times EV/Ebitda on FY25E basis looks attractive considering the multiple tailwinds. We value Birla Corp at Rs 1540 i.e. 8.5 times FY25E EV/Ebitda.
About the stock:
Birla Corporation, incorporated in 1919, is the flagship company of the MP Birla Group. The company is primarily engaged in the manufacturing of cement as its core business activity with presence in the jute goods industry as well.
Cement business contributes ~95% to total revenues and has a total capacity of 20 million tonnes with 11 plants across Madhya Pradesh, Uttar Pradesh, Rajasthan, Maharashtra and West Bengal.
Company's consolidated revenue grew by ~8% CAGR over FY20-23 while Ebitda and profit after tax are down by ~17% and ~57% CAGR over the period (on account increase in operational costs during FY22 and FY23).
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