Jinesh Gandhi Sandipan Pal

Transcription

1 BSE Sensex S&P CNX 20,224 6,157 Bloomberg BCORP IN Equity Shares (m) 77.0 M.Cap. (INR b)/(usd b) 20.5/ Week Range (INR) 342/202 1,6,12 Rel. Perf. (%) 6/-15/-23 Financials & Valuation (INR b) Y/E March E 2015E Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (x) May QFY13 Results Update Sector: Cement Birla Corporation CMP: INR266 TP: INR352 Buy Results below expectations: Birla Corporation's (BCORP) 3QFY13 performance was marginally below expectations. Net sales grew 2.4% YoY (8.7% QoQ) to INR6.7b (v/s our est. of INR6.8b) and EBITDA declined 17% YoY (29%QoQ) to INR663m (v/s our est. of INR706m). EBITDA margin expanded 1.6pp YoY (contracted 2.3pp QoQ) to 10%. Higher other income and lower interest cost resulted in PAT of INR726m (v/s our est. of INR433m). Cement volumes higher than expected: Cement volumes grew 4.6% YoY (9.1% QoQ) to 1.71m tons (v/s our est. of 1.61m tons). Growth in FY13 dispatch volumes was above par (on low base of FY12), despite ban on limestone mining at its Rajasthan (Chanderia) plant. Full-year volumes grew 8.5% to 6.47m tons, including 2.5m tons at Chanderia plant (78% utilization). Profitability lower than estimated: Realizations declined 0.9% YoY (4.5% QoQ) to INR3,581/ton (v/s our est. of INR3,959/ton). Cement revenue grew 3.7% YoY (4.2% QoQ). EBITDA/ton was INR507 (v/s our est. of INR606/ton, INR447/ ton in 3QFY13). Lower than expected profitability is attributable to sharp decline in realizations (INR8.5/bag QoQ), albeit partially offset by QoQ moderation in variable cost and positive operating leverage. Resolution of mining ban crucial: CBRI has sought further time for submitting report on the impact of mechanized mining at Chanderia on Chittorgarh Fort, with next hearing scheduled on July Resolution of mining ban is critical for future volume growth, capacity addition and normalization of profitability. Downgrading estimates; maintain Buy: We are downgrading our EPS estimates for FY14/15 by 15.7%/5.3% to INR30/INR47.3, to factor in for INR6/bag price decline in FY14 and INR15/bag improvement in FY15. The stock trades at 5.6x FY15E EPS, and EV of 2.7x FY15E EBITDA and USD26/ton. Maintain Buy, with a target price of INR352. The board has announced a dividend of ~INR7/share (including interim dividend of INR2.5/share) as against INR6/share last year. Jinesh Gandhi (Jinesh@MotilalOswal.com) Sandipan Pal (Sandipan.Pal@MotilalOswal.com);

2 Trend in volumes and realizations Revenue in line, as higher volumes offset dip in realizations Net sales grew 2.4% YoY (8.7% QoQ) to INR6.7b (v/s our estimate of INR6.8b) in 4QFY13. Cement volumes grew 4.6% YoY (9.1% QoQ) to 1.71m tons (v/s our estimate of 1.61m tons). Growth in FY13 dispatch volumes was above par (on low base of FY12), despite ban on limestone mining at its Rajasthan (Chanderia) plant. Full-year volumes grew 8.5% to 6.47m tons, including 2.5m tons at Chanderia plant (78% utilization). Cement realizations declined 0.9% YoY (4.5% QoQ) to INR3,581/ton (v/s our estimate of INR3,959/ton). Cement revenue grew 3.7% YoY (4.2% QoQ). Non-cement business (jute and others) revenue declined 10% YoY but improved sequentially to INR541m. The jute mill at Birlapur resumed operations in mid- November Trend in revenue mix (INR m) 4QFY13 4QFY12 YoY (%) 3QFY13 QoQ (%) Cement 6,116 5, , Contribution (%) Jute Contribution (%) Others Contribution (%) Net sales 6,658 6, , Source: Company, MOSL Cost push moderates, yet realization decline dents profitability EBITDA margin expanded 1.6pp YoY (declined 2.3pp QoQ) to 10%. EBITDA declined 17% YoY (grew 29% QoQ) to INR663m (v/s our estimate of INR706m). Cement business EBITDA was INR507/ton (v/s our estimate of INR606/ton, INR447/ ton in 3QFY13 and INR678/ton in 4QFY12). Lower than expected profitability is attributable to sharp decline in cement realizations (INR8.5/bag QoQ), albeit partially offset by sequential moderation in variable cost and positive operating leverage. Higher other income and lower interest cost resulted in PAT of INR726m (v/s our estimate of INR433m). Purchase of clinker for Rajasthan plant (where limestone mining is banned) remains an overhang on RM cost. Trend in EBITDA Trend in cement EBITDA (INR/ton) 21 May

3 Trend in PBIT mix (INR M) 4QFY13 4QFY12 YoY (%) 3QFY13 QoQ (%) Cement Contribution (%) Jute Contribution (%) Others Contribution (%) Total Source: Company, MOSL Interim approval for mechanical mining at Rajasthan plant Operations at BCORP s Rajasthan plant (capacity: ~2m tons) have been impacted with effect from 27 August 2011 due to ban on mining within 10km of the Chittorgarh Fort. On 8 March 2013, the Supreme Court permitted mine operations using mechanical means without blasting for four weeks, during which period CBRI would carry out a study on the impact of mechanized mining at Chanderia on Chittorgarh Fort. CBRI has sought further time for submitting its report to the Supreme Court. The next hearing of this case is scheduled for July Resolution of the mining ban would be critical for future volume growth, capacity addition and normalization of profitability. Resolution of the mining ban would be critical for future volume growth and normalization of profitability. The company is prepared for brownfield expansion of 1.5m tons, with 50MW CPP at Chanderia, subject to the Supreme Court allowing mechanized mining. Our estimates factor in no resolution of the ban in the foreseeable future, resulting in higher RM cost. Downgrading EPS estimates, target price We are downgrading our EPS estimates for FY14/15 by 15.7%/5.3% to INR30/INR47.3, to factor in lower realization estimates. We factor in volume growth of 7%/8% for FY14/15. We now factor INR6/bag decline (v/s INR8/bag increase earlier) in FY14 and INR15/ bag improvement (v/s INR12.5/bag earlier) in FY15. This translates into 6% downgrade in target price to INR352 (v/s INR374 earlier). Revised Forecast (INR m) FY14E FY15E Rev Old Chg (%) Rev Old Chg (%) Net Sales 27,658 28, ,952 32, EBITDA 3,124 4, ,929 5, Net Profit 2,307 2, ,644 3, EPS (INR) Source: MOSL 21 May

4 Maintain Buy Favorable market mix (North, East and Central India) and efficient operations impart strong resilience to operating performance, if demand weakens further. Resolution of mining ban would be the key catalyst for the stock, as ~34% of its capacity is impacted by this ban. Its further capex plans are marred by ongoing litigation (~1.5m tons at Rajasthan due to mining ban; 3m tons plant at Satna awaiting mine allocation). We believe BCORP has the potential to drive strong operating performance (EBITDA/ton of over INR1,000 by FY15, adjusted for loss due to mining ban). Balance sheet remains strong, with net cash of INR5.2b. The stock trades at 5.6x FY15E EPS, and EV of 2.7x FY15E EBITDA and USD26/ton. Maintain Buy with a target price of INR352 (EV of ~4x FY15E EBITDA). 21 May

5 Birla Corporation: an investment profile Company description Birla Corporation (Bloomberg: BCORP), established in 1919, is part of the MP Birla group. It manufactures cement, jute products, synthetic viscose and cotton yarn. Cement constitutes about 85% of its revenue. It has cement plants in Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal. Key investment arguments Among the key cement producers, with a capacity of 8.1m tons, having strong presence in North, East and Central India. Strong balance sheet, with zero net debt. Provides good platform to grow organically as well as inorganically. Recently added capacities to drive volume growth from FY13 onwards. Key investment risks Delay in capacity expansion would result in time and cost overruns, as well as muted volume growth. Increase in energy cost would impact profitability. Restoration of limestone mining at Rajasthan plant would be critical for improvement in profitability. Recent developments CBRI has sought further time for submitting its report on the impact of mechanized mining activity at Chanderia on Chittorgarh Fort. The next hearing of this case is scheduled for July The board has announced a dividend of ~INR7/share (including INR2.5/share of interim dividend) as against INR6/share, last year. Valuation and view The stock trades at 5.6x FY15E EPS, and at an EV of 2.7x FY15E EBITDA and USD26/ton. Maintain Buy with a target price of INR352 (EV of ~4x FY15E EBITDA). Sector view Unusual price weakness of 4QFY13 is expected to prevail in 1HFY14, as demand is expected to pick up only post monsoon. Structural increase in cost base (both capex and opex) would necessitate higher cement prices. Revival in cement demand would be the key catalyst for stock performance. Comparative valuations Birla JK Lakshmi Dalmia Bharat Corp Cement Cement P/E(x) FY14E FY15E P/BV(x) FY14E FY15E EV/Ton (USD) FY14E FY15E EV/EBITDA(x) FY14E FY15E EPS: MOSL forecast v/s consensus (INR) Most Consensus Variation Forecast Forecast (%) FY FY Target price and recommendation Current Target Upside Reco. Price (INR) Price (INR) (%) Buy Stock performance (1 year) Shareholding pattern (%) Mar-13 Dec-12 Mar-12 Promoter Domestic Inst Foreign Others May

6 Financials and Valuations 21 May

7 N O T E S 21 May

8 Disclosures This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. Disclosure of Interest Statement Birla Corporation 1. Analyst ownership of the stock No 2. Group/Directors ownership of the stock Yes 3. Broking relationship with company covered No 4. Investment Banking relationship with company covered No Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. Regional Disclosures (outside India) This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions. For U.K. This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to which this document relates is only available to investment professionals and will be engaged in only with such persons. For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account. For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Nihar Oza Kadambari Balachandran niharoza.sg@motilaloswal.com kadambari.balachandran@motilaloswal.com Contact: (+65) Contact: (+65) / Office address: 21 (Suite 31), 16 Collyer Quay, Singapore Motilal Oswal Securities Ltd Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai Phone: reports@motilaloswal.com