Gladiator Stocks Scrip IDi I-Direct tcode Action Target Stoploss Birla Corporation BIRCOR Buy in the range of 655-670 795 580 Time Frame: 6 Months Research Analysts Dharmesh Shah dharmesh.shah@icicisecurities.com Dipesh Dagha dipesh.dagha@icicisecurities.com August 18, 2016
Gladiator Stocks: Birla Corporation Time Frame: Six months CMP: 670.0000 Buying Range: 655-670 670 Target: 795.00 Stop loss: 580.00 00 Upside: 20% Stock Data 52 Week High / Low 670/318.05 50 days EMA 540 200 days EMA 457 52 Week EMA 455 Face Value ( ) 10 Market Capitallisation ( Cr.) 5144 *Recommendation given on i-click to gain on August 18 2016 at 10:21 hrs Stock price vs. BSE 500 700 600 500 400 300 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Birla Corp BSE500 11,500 11,000 10,500 10,000 9,500 9,000 Price performance in last five years 50% 0% -50% -25% 13% -12% 77% 1% 2011 2012 2013 2014 2015 Year Source: Bloomberg, BSE, ICICIdirect.com Research Technical View The share price of Birla Corporation has triggered a structural turnaround after registering a resolute breakout from the two year long corrective phase thereby signalling resumption of primary uptrend after an elongated secondary correction and provides good investment opportunity from medium term perspective to ride the next up move within the larger uptrend Robust long term price structure The stock witnessed a strong rally in 2014, rallying from a low of 230 in March 2014 to a life high of 614 in August 2014. After the sharp sprint of over 1.6x in just six months, the stock entered into a corrective phase to work off the excesses built during the preceding rally. The key attributes of price wise and time wise behaviour of the stock during the corrective phase highlights the overall bullish price structure. The stock witnessed over 18 months of gradual price correction that retraced its preceding six months rally by 80% at its February 2016 low of 318 levels. The stock respected the 80% retracement threshold which often acts as key catalyst triggering major reversals in trending markets. The price wise correction was limited to 80% whereas the stock consumed over 3 times the amount of time (18 months) taken for the preceding rally of six months thereby clearly quantifying this as a secondary correction within the primary uptrend Faster retracement the major decline signals major turnaround After concluding the price wise correction at 318 levels in February 2016, the stock embarked upon a strong uptrend and the subsequent rally has seen the stock completely overhaul the preceding 18 month fall ( 614 to 318) in just six months and surged to new life highs in the current month. Faster retracement of the major corrective decline highlights the strong bullish momentum and signals end of the prolonged secondary corrective phase and resumption of the structural uptrend Behaviour of volume confirms the bullish price structure The entire corrective decline over the 18 months from August 2014 to February 2016 was on the back of receding volumes implying lack of active participation in the down move. However the entire price up move over the last six months has seen the weekly volumes jump well above the 52 week average volumes of 2.45 lakh shares clearly highlighting larger participation in the direction of primary trend and indicates strength in the price breakout Conclusion Based on the abovementioned technical observations, we believe the stock presents a good buying opportunity with a decent reward/risk setup for medium-term investors. We expect the share price to remain in rising trajectory and head towards 820 levels over the medium term being the depth of the correction (250 points) added to the breakout point of 570. This also coincides with the 138.2% extension of the last up move (370 to 571) measured from recent trough of 520 projecting upside towards 800 region 2
Gladiator Stocks: Birla Corporation Weekly Bar Chart Faster retracement of major decline signals resumption of primary uptrend Measured implication @ 820 138.2% extension@ 800 614 6 Month rally 6 Month rally Research Analyst Dharmesh Shah dharmesh.shah@icicisecurities.com 18 Month correction 318 80% retracement Dipesh Dagha dipesh.dagha@icicisecurities.com 230 Volume expansion in the direction of primary trend MACD diverging above its 9 period average signals strong bullish momentum Source: Bloomberg, ICICIdirect.com Research 3
Gladiator Stocks: Birla Corporation Limited Stock Data Particulars Amount Market capitalisation ( crore) Total debt ( crore) Cash and Cash equivalent ( crore) 5152.4 1286.0 1620.0 EV ( crore) 4818.4 52 week H/L 674/322 Equity capital 7.7 Face value 10.0 Key Metrics FY13 FY14 FY15 FY16 P/E 19.1 39.7 29.4 32.7 EV/EBITDA 14.7 28.2 21.6 23.7 P/B 0.8 0.9 1.2 1.1 RoNW 11.5 5.2 6.8 5.9 RoCE 88 8.8 51 5.1 60 6.0 55 5.5 Financial Highlights crore FY13 FY14 FY15 FY16 Sales 2603.0 3016.4 3209.9 3275.0 EBITDA 328.0 170.9 223.0 203.7 Net profit 269.8 129.8 175.4 157.4 EPS ( ) 35.0 16.9 22.8 20.4 Source: Company, ICICIdriect.com Research Fundamental View Birla corporation is a leading player in the cement space with the total capacity of 10 MT. The company has been operating at a healthy utilisation of over 85% due to high presence in north. With the acquisition of reliance cement the company s total capacity will increase to 15.5 MT making it a formidable player in the cement space. Increase in infra spends by government to drive growth A pick up in rural housing on the back of normal monsoon and 7th pay commison is expected to drive cement demand in the coming years. Apart from this, the company will be key beneficiary of expected revival in the demand on account of higher budgetary allocation towards development of roads and highways along with governments focus on rural development. We expect cement demand to reach to 305 mt by FY18E (i.e. at CAGR of 7.5%) v/s (CAGR of 3.5% over last 5 years). In addition, we believe a stable pricing scenario is expected to positively impact revenues and margins over the next three years. Removal of ban on mining operation at Chanderia a key trigger The mining operation at the Chanderia plant (which is ~40% of total capacity of 10 MT) had been suspended since August 2011 owing to a suspension order by the Jodhpur High Court (Rajasthan). The order restricted Birla corp from blasting of mines due to allegedly adverse impact of blasting on Chittorgarh fort. Thus the company had to fulfill its limestone requirement by mechanical mining and purchase of clinker from outside, leading to a dip in margins from 20.8% in FY11 to 8.7% in FY16. However, the order was challenged by the company in Supreme Court. The Supreme Court directed Central Building Research Institute (CBRI) to investigate full scale impact of mining operation by Birla corp on Chittorgarh fort. The report of CBRI has concluded that the mining operations at Birla cement works had no damage to the fort. Although the judgment on the case is still pending in Supreme Court,basedonthereportofCBRIwebelievethereisapossibilitythatthecompanymightbeabletoresumefull scale mining i operation at Chanderia. This will lead tosustainable improvement in company s margins over the coming years. Acquisition of reliance cement to make the company a formidable cement player In FY16, the company signed a share purchase agreement with reliance infrastructure limited for acquisition of its entire cement business (~ 5.5 MT capacity) for an enterprise value of 4,800 crores ($140/t). The acquisition will take the total capacity of the company to 15.5 MT from 10 MT making it a formidable player in cement industry. Further the acquisition will provide an entry into the central region apart from north and east. However, the acquisition is pending as it is subject to regulatory approval. Available at an attractive valuation Birla corp is expected to be a key beneficiary of the demand recovery in the sector led by higher infra spends by the government. This coupled with improving pricing scenario in the company s key markets is expected to result in robust revenue growth for the company. In addition, we expect the lifting of mining ban and various cost reduction measures (like higher usage of fly ash & pet coke and reduction in power consumption) is expected to positively impact company s margin. Further, the company is trading at an attractive valuation of $80 EV/tonne on standalone basis (i.e. at 25% discount to comparable peers) and $103/tonne on combined basis (i.e including reliance cement assets bought at $140/t). 4
Strategy Follow up Open Recommendations: Date Scrip Name Rec Price Target Stoploss CMP Return till date (%) 1-Jul-16 Container Corporation 1455 1765 1310 1456 0.1% 13-Jul-16 Shilpa Medicare 580 710 540 564-2.8% 13-Jul-16 Reliance Industries 1000 1145 938 990-1.0% 20-Jul-16 Bosch 24750 27800 22800 24790 0.2% 29-Jul-16 M&M Financial 324 395 289 325 0.3% 29-Jul-16 Shriram Transport Finance 1262 1545 1128 1250-1.0% Summary Performance - Recommendations till date Open Recommendations 6 Total Recommendations 83 Yield on Positive recommendations 21.0% Closed Recommendations 77 Yield on Negative recommendations -7.0% Positive Recommendations 56 Strike Rate 73% 5
Notes It is recommended to enter in a staggered manner within the prescribed range provided in the report Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis. The recommendations are valid for six months and in case we intend to carry forward the position, it will be communicated through separate mail. Trading portfolio allocation It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products Please avoid allocating the entire e trading corpus to a single stock or a single product segment Within each product segment it is advisable to allocate equal amount to each recommendation For example: The Daily Calls product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation 6
Recommended product wise trading portfolio allocation Product Allocations Product wise Max allocation in allocation 1 Stock Number of Calls Return Objective Frontline Stocks Mid Cap Stocks Duration Daily Calls 8% 2-3% 3-4 Stocks 0.5-1% 2-3% Intraday Stocks on the Move 6% 3-5% 7-10 Per Months 7-10% 10-15% 3 Months Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technicals 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Gladiator Stocks 15% 5-10% 1-2 Stocks 15% and above 20% and above 6 Months Cash 10% - 100% 7
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Disclaimer ANALYST CERTIFICATION We /I, Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Nonrated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at thesametime. ICICISecuritieswillnottreat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. 9
Disclaimer ICICI Securities i accepts no liabilities i whatsoever for any loss or damage of any kind arising i out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee, Vinayak Parmar Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. 10