Buy Birla Corp; target of Rs 1455: HDFC Securities
HDFC Securities’s research report on Birla Corp
Birla Corp’s (BCORP) numbers beat estimates (Rs 638/t, Est Rs 484, (1.0)/(10.9)% YoY/QoQ). The beat was primarily on account of lower other operating expenses (Rs 1.0bn vs Rs 1.5bn run-rate in previous 2 quarters). Numbers are not comparable YoY, due to Acquired ops being included from August 22, 2016. The 2QFY18 delivery was in spite of the severe sand shortages in UP and Bihar. Birla Corp remains relatively undervalued (11.4/10.0x EV/EBITDA for FY19/20), compared to large cement companies which trade at 15/13x. It is the best play on Central India, which is not expected to see any significant capacity additions in the near future, driving high utilizations.
Higher leverage (FY18E Net Debt/EBITDA: 4.6x, Net D/E: 1.2x) vs peers (mostly debt free) and lower profitability in the standalone ops, may weigh on further rerating. We maintain BUY with and upgrade our TP (Rs 1,455, 12.0x Sep-19 EV/EBITDA US$ 138/t).
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