Analyst Research Report Snapshot

Title:

Spark Capital: Birla Corporation 1QFY14 results review - Strong volume growth performance, however profitability remains under pressure; Maintain BUY

Price:

$46.00

Provider:

Spark Capital Advisors(India) Private Limited

Date:

29 Jul 2013

Pages:

5

Type:

AcrobatPDF

Companies referenced:

BRLC.NS

Available for Immediate Download
Summary:

Strong volume growth performance, however profitability remains under pressure Birla Corporation (BCORP) 1QFY14 revenues grew strongly by 17% y-o-y led by higher volume growth of ~15% to 1.87mt. Realisations, however de-grew by ~4% y-o-y to Rs. 3,864/t. EBITDA/t came in at Rs. 340/t vs. 790/t in 1QFY13 and Rs. 361/t in 4QFY13. Reported PAT at Rs. 460mn de-grew 46% y-o-y. We remain positive on BCORP, given (1) their presence in high-growth regions (North, East, & Central) with sizable capacity; (2) debt free balance sheet with net cash of Rs. 3.7bn & (3) attractive valuations. At CMP of Rs. 215, the stock is trading at an EV/EBITDA of 3x FY15E, which we believe is inexpensive. We maintain BUY with a target price of Rs. 260/share (earlier Rs. 300) which is arrived based on 4x FY15E EBITDA. Key takeaways from the result and our interactions with the management: Update on mining ban at Chanderia plant: The company had filed for a special leave petition challenging the order of the High Court of Jodhpur, which was heard in the Supreme Court. While hearing the appeal, the court had permitted mining activities with mechanical means without blasting for a period of four weeks, from 18th Mar to 14th April 2013 to enable Central Building Research Institute (CBRI) to study the impact of mining activities on Chittorgarh Fort. Further, CBRI has submitted its report. The Supreme Court has advised Archeological Survey of India to submit affidavit for its views on the recommendations made in the report. Hearing on the matter is expected by end of July-13 Volume and realisation outlook: Volumes grew by 14.7% y-o-y for the quarter which was driven by ~31% increase in output from its Chanderia plant. This was due to temporary mining ban relief for four weeks (18th Mar to 14th April), which resulted in higher limestone production and as a result higher cement production. We model in 8% volume growth over FY14E. Realisations for the quarter de-grew by 3.8% y-o-y. We model in 3% realisation growth in FY14E. Expansion plans: With the commissioning of 0.7mt grinding unit at Durgapur in FY13, the company’s capacity stands at 9.3mt. Further, the company has received environmental approval for expansion of 1.5mt at Chanderia, however expansion work will start once clarity on the mining ban emerges. The Madhya Pradesh government has recommended to the Union Ministry of Mines for allotment of mining lease in Satna district. However, the recommendation has been challenged by various parties in the Mines Tribunal and High Court of Jabalpur. BCORP will consider setting up 3mt integrated plant once the recommendation gets accepted. We cut our EBITDA estimates by 22% and 15% over FY14E-15E mainly due to weak realisations

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