Birla Corporation: Cement volumes are likely to decline 4.6% y-o-y in Q1FY13
- Motilal Oswal expects Birla Corporation’s revenue to grow just 2.8% y-o-y (decline 12% q-o-q) to Rs5.7b. Cement volumes are likely to decline 4.6% y-o-y (~11% q-o-q) to 1.45m tonnes, impacted by ban on limestone mining at is Rajasthan plant. However, cement realizations are likely to improve 4.4% q-o-q (~9.9% y-o-y) to Rs3,761/tonne.
- The benefit of higher realizations would be diluted by higher RM cost (as purchased limestone/clinker replaces captive source) and higher energy cost, translating into a deterioration of 12.3 percentage points y-o-y (improvement of 220% q-o-q) in EBITDA margin to 14.2%. Cement PBITDA/tonne is estimated at Rs748 (+Rs70/ tonne q-o-q; –Rs320/tonne y-o-y).
- EBITDA to decline 45% y-o-y (increase ~4% q-o-q) to Rs814m, translating into PAT de-growth of 53% y-o-y (~8% y-o-y) to Rs528m.
- Operations at its Rajasthan plant (~2m-tonne capacity) have been impacted since 20 August 2011 due to ban on mining within 10km of the Chittorgarh Fort. The company had appealed against the ban in the High Court but it lost the case. If the issue is not resolved, operations at its Rajasthan plant would be severely curtailed, more so as it is expanding capacity there.
- EPS estimates are downgraded by 30%/27% for FY13/14 to Rs24/Rs27. The stock trades at 9.4x FY13E EPS and an EV of 6.8x FY13E EBITDA. Maintain Buy, with a target price of Rs240 (EV of 6x 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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