Buy Birla Corporation; target of Rs 610: ICICI Direct

ICICI Direct is bullish on Birla Corporation has recommended buy rating on the stock with a target price of Rs 610 in its research report dated May 26, 2020.

ICICI Direct's research report on Birla Corporation

Birla Corporation reported a healthy Q4FY20 performance. While the topline declined YoY, its profitability improved. Revenues for the quarter declined 9.8% YoY to Rs 1,690 crore driven by a decline in volumes. Sales volumes for the quarter were at 3.3 MT, down 13% YoY, thus ending the year on a flattish note at 13.6 MT. Realisations continued to improve, growing 4% YoY to Rs 5,060/t as the company continued to focus on blended and premium cement. The company derived 81% of its sales from the trade channel and premium cement’s share in trade sales improved from 37% in FY19 to 41% in FY20. Profitability saw an improvement QOQ as well as YoY, led by higher realisations. The company clocked EBITDA margins of 20.4%, 17.2%, 16.5% in Q4FY20, Q3FY20, Q4FY19, respectively. EBITDA/t increased 28% YoY to Rs 1,032/t. On an absolute basis, EBITDA increased 11% YoY to Rs 344.6 crore while PAT saw strong 52% growth YoY led by higher operating profits. Further, the board has also approved raising Rs 300 crore via issue of NCDs and buyback of current outstanding NCDs subject to requisite approvals.

Outlook

While the ongoing expansion may increase the debt burden in the medium term, the company’s healthy asset utilisations, healthy margin profile remain key positives, which will help the company to ride this medium term challenges. We upgrade the stock to BUY with a revised target price of Rs 610/share (i.e. valuing at 7.0x FY22E EV/EBITDA, EV/t of $72).

For all recommendations report, click here

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