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YES Securities
Birla Corporation (Buy)
CMP: ₹504.25
Target: ₹655
Birla Corporation enjoys a strong capacity share of about 14.1 per cent currently in Central India. We estimate cement demand in Central region to grow at 7.8 per cent over FY18-FY21E on the back of sustained growth in infrastructure investments by the government and construction under affordable housing.
Pricing scenario to remain healthy — We expect incremental capacity of about 8 mtpa over FY18-FY21 as compared to incremental demand of about 14 MT in Central region during the same period, which would ensure healthy pricing scenario.
Company plans to commission 12.25-MW Waste Heat Recovery System (WHRS) at Maihar along with ramp-up of captive coal mine at Sial Ghogri, Madhya Pradesh, which would improve operational efficiencies going ahead.
We factor in total outgo of ₹3,178 croreRs 31,780 mn over FY18-FY21E towards efficiency improvement and capacity addition plan (capacity would increase to about 20.5 mtpa by FY22E from about 15.4 mtpa currently). Net debt/equity to hover around 1.07x post all capex plans.
Huge land bank (addition of ₹842.9 crore) and limestone reserves post acquisition of Reliance Cement would help to add incremental capacity at lower cost.
Return ratios appearing optically suppressed due to revaluation of assets to the tune of ₹820.7 crore in FY18.
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