After an over 8 percent decline just in August, brokerage house Axis Securities has picked Birla Corporation as its top pick of the week. This is on the back of its attractive valuations, multiple macroeconomic tailwinds, encouraging growth opportunities, and positive company-specific triggers.
The brokerage has a ‘buy’ recommendation on the stock with a target price of ₹1,250, indicating an upside of almost 11 percent from its current market price of ₹1,128.20, as of August 28.
Birla Corporation Limited (BCL), the flagship company of the M.P. Birla Group, is involved in a core business activity of cement manufacturing. Its cement division has 11 plants at eight locations. Currently, the company’s total cement manufacturing capacity stands at 20 million tonnes per annum (mtpa) and it is one of the dominant players in the Central India region with an estimated 12 percent market share. The company has also established a significant presence in the Jute Goods industry.
Stock Price Trend
The stock has jumped around 15 percent in the last 1 year as well as in 2023 YTD, giving positive returns in 4 of the 8 months so far in this current calendar year.
The stock rose the most in May 2023, surging 22 percent, and has shed the most in August so far, down over 8 percent.
Birla Corp is currently 11 percent away from its 52-week high of ₹1,266, hit on June 30, 2023. Meanwhile, it has advanced 34 percent from its 52-week low of ₹843, hit on February 27, 2023.
Earnings
In the June quarter, Birla Corporation posted a 3.6 percent year-on-year (YoY) decline in consolidated net profit to ₹59.71 crore versus ₹61.92 crore in the year-ago period. The company attributed this decline to higher depreciation and interest costs. Meanwhile, its total income in Q1FY24 rose 9.3 percent to ₹2424.63 crore as cement volumes grew by 12.2 percent.
Investment Rationale
Healthy volume growth momentum: The brokerage pointed out that the company’s volume growth was 12 percent in Q1FY24 and it expects the growth momentum to continue in FY24E. The firm is working to further improve Mukutban's capacity utilization and realization and has also expanded its footprint in nearby markets of Telangana, Madhya Pradesh and Gujarat to capitalize on new growth opportunities driven by robust infrastructure investments. Axis forecasts the company to grow volumes at 10 percent CAGR during FY22-25E.
Improvement in EBITDA/tonne in FY24E: To mitigate cost pressures, the company has optimized its fuel consumption mix, said the brokerage, adding that the decline in fuel prices, higher sales of blended and premium products from the Mukutban unit, and other cost savings from internal efficiencies are expected to drive the company's EBITDA/ton. It estimates an improvement in EBITDA/tonne in the range of ₹300-350 in FY24E over FY23.
Robust cement demand in the country: As per the brokerage, cement demand in the country is expected to remain robust driven by higher capital expenditure on roads, railways, and housing by the Central government and robust real estate demand. The industry is expected to grow at a CAGR of 9 percent over FY23-FY25E, enabling better capacity utilization for the industry moving ahead, it noted.
Outlook & Valuation: Ramping up new Greenfield units in Maharashtra would significantly support the company’s revenue and volume growth going forward. Further, the brokerage expects the company to grow Sales/EBITDA/APAT at a CAGR of 12 percent/15 percent/23 percent during FY22-FY25E on the back of its strong position in the high-demand central region, higher sales of premium products, cost optimization measures, and increased cement demand.
The stock is currently trading on 8.5x and 7x FY24E/FY25E EV/EBITDA and EV/tonne of $73 and $70 which is attractive compared to other similar peers in the industry, it added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
