Birla Corp - Navigating Growth In A Changing Market Environment: Motilal Oswal

Motilal Oswal Report

Birla Corporation Ltd. is seeing steady progress in its Mukutban plant operations, with the capacity utilisation of the plant reaching ~46% by September 2023-end. Moreover, there has been continued improvement in Oct-23. Capacity utilisation is likely to reach ~65-70% by FY24-end.

Variable costs have reduced by ~50% at this plant since its commencement of operations.

The company is targeting Ebitda/tonne improvement of Rs 300-350 in FY24E led by cost saving initiatives and increasing share of premium products. It is ramping up coal extraction from captive coal mines to optimize fuel cost.

It is investing in kilns to equip them to increase AFR usage. It is optimising logistics cost by increasing direct dispatches from the plant and re-routing clinker distribution (including clinker swapping) to its grinding units. 

Birla Corp plans to increase grinding capacity to 25 million tonnes per annum by FY26 from the existing capacity of 20 mtpa. According to available data on environmental clearance received by the company, we believe the next phase of expansion will be in north/central India. We believe the company has EC for an extra 5.6 mtpa/6.5 mtpa clinker/cement capacity at its current locations.

Apart from this, the company has announced a greenfield grinding capacity expansion of 1.4 mtpa in Prayagraj, Uttar Pradesh, at an estimated capex of Rs 4 billion. This facility is likely to be commissioned by Q1 FY26.  We raised our Ebitda estimates by 3%/2% for FY24/FY25 driven by cost efficiencies, which led to increase in earnings per share estimate by 6%/3% for FY24/FY25.

The stock currently trades at 8x/7x FY25E/26E enterprise value/Ebitda, a lower valuation compared to its similar-sized peers.

We value the stock at nine times September-25E EV/Ebitda to arrive at our target price of Rs 1,700 (EV/tonne of $90). Reiterate 'Buy'.

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