Birla Corporation registers better-than-expected performance
- Birla Corp's 1QFY13 performance was better than expected, with EBITDA of Rs1.26b (v/s estimate of Rs814m) and PAT of Rs847m (v/s estimate of Rs528m), led by higher than estimated cement volumes and realizations, and in-line cost push.
- Cement volumes grew ~7.1% y-o-y (declined 1% q-o-q) to 1.63m tonnes (v/s estimate of 1.45m tonnes). Volumes were driven by purchased clinker, following the ban on limestone mining at its Rajasthan facility. Cement realizations increased 17.8% y-o-y (11.7% q-o-q) to Rs4,021/tonne (v/s estimate of Rs3,761/tonne). As a result, cement revenue grew 26% y-o-y (~11% q-o-q).
- Net sales grew 18% y-o-y (~1% q-o-q) to Rs6.6b (v/s estimate of Rs5.7b). EBITDA margin declined 7.4pp y-o-y (expanded 8.1pp q-o-q) to 12%. EBITDA de-grew 15% y-o-y (grew 61% q-o-q) to Rs1.25b (v/s estimate of Rs814m), impacted by MTM forex loss of Rs122m (v/s gain of Rs147m in 4QFY12 and gain of Rs16m in 1QFY12). Higher interest due to capitalization of Rajasthan plant restricted PAT to Rs847m, down 24% y-o-y (up 47% q-o-q), against the estimate of Rs528m.
- Cement business EBITDA/tonne grew sharply to Rs1,011 (v/s estimate of Rs748/tonne and Rs678/tonne in 4QFY12). The strong operating performance is attributable to higher than estimated volumes and realizations, the benefit of which was diluted by in-line cost push.
- Birla Corp has appealed in the Supreme Court against the High Court order on mining ban at Rajasthan. Lifting of the mining ban would be critical for future volume growth and normalization of profitability.
Valuation and view: Motilal Oswal upgrades the EPS estimates for FY13/FY14 by 35%/21% to Rs32.5/Rs32.7. The stock trades at 6.6x FY14E EPS, and at an EV of 4x FY14E EBITDA and USD33/tonne. Lifting of the mining ban would be the key catalyst for the stock. Maintain Buy with an upgraded target price of Rs277 (EV of ~5x FY14E EBITDA).
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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