Buy Birla Corporation; target of Rs 1835: Motilal Oswal

Motilal Oswal is bullish on Birla Corporation recommended buy rating on the stock with a target price of Rs 1835 in its research report dated November 11, 2021.

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Motilal Oswal’s research report on Birla Corporation

Birla Corporation (BCORP)’s 2QFY22 result highlights the impact of energy cost inflation, as variable cost of production increased 14% QoQ. The EBITDA margin declined 7.4pp YoY to 15.7% and EBITDA/t 30% YoY to INR817/t. Volumes remained flat YoY at 3.27mt v/s the est. of 3.39mt. The ongoing 3.9mtpa greenfield expansion at Mukutban (to be commissioned in 4QFY22) provides volume growth visibility for FY23E/FY24E. It also completed debottlenecking at the Chanderiya plant, which led to an increase of 0.63mtpa in clinker capacity (5,500tpd from 3,600tpd). We raise our FY24E EBITDA estimates by 5%, factoring in better realization and lower costs (considering decline in energy costs). Valuations are attractive at 10.4x/8.4x FY23/FY24E EV/EBITDA. We reiterate our Buy rating.

Outlook

At 10.4x/8.4x FY23/24E EV/EBITDA, BCORP trades at a much lower valuation than the average for companies with similar capacities in our Coverage Universe. The stock traded at average one-year forward EV/EBITDA of 8x over FY14–21. We value BCORP at 10.5x Sep’23E EV/EBITDA to arrive at our Target Price of INR1,835 and maintain a Buy rating.

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