Emkay Global Financial is bullish on Birla Corporation has recommended buy rating on the stock with a target price of Rs 647 in its research report dated May 23, 2020.
Emkay Global Financial's report on Birla Corporation
Q4 operating performance beat the estimates on lower variable costs (down Rs275/ton yoy and Rs246/ton qoq). EBITDA stood at Rs3.4bn vs. estimated Rs3.1bn and EBITDA/ton came in at Rs1,036 vs. estimated Rs898. Key positives: 1) lower variable costs, down 11.6% yoy/10.5% qoq; 2) realization growth of 3.1% qoq; though net plant realization was up only 1.5% qoq; and 3) improved working capital. Key negative was sales volume decline of 14.3% yoy (est.: 12% decline). Current utilization of its plants (except grinding units in Raebareli, UP and Durgapur, West Bengal) is between 80-100%. The Mukutban, Maharashtra, plant will be commissioned by Jun-21. Expansion of Kundanganj, UP, grinding unit has been kept on hold.
Outlook
We maintain Buy on BCORP, with a revised TP of Rs647 (from Rs469), valuing it at 8x Jun-22E EV/EBITDA and post-tax incentives at a WACC of 11%. We believe that capex and hence, the debt increase will be lower than our assumptions. We raise FY21-23E EBITDA by 1-6%. We now factor in capex of Rs36.8bn for FY20-23E vs. Rs42bn earlier as 44% of the estimated capex for the Maharashtra plant has already been incurred.
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