Anand Rathi
Birla Corp (Buy)
Target: ₹900
CMP: ₹706.05
With 15.5m-ton cement capacity across north, central and east India, Birla Corp is aiming at 25 mt cement capacity by FY25. The ongoing expansion will keep leverage high; we believe, however, that its net debt would be in check with greater profitability on various cost-optimisation steps and higher volume growth on the ramping up of capacities.
A judicious geographic- and product-mix aimed at raising the shares of blended and premium cement in its portfolio are positives. We retain our Buy rating, with an unchanged target of ₹900. Greater capacity utilisation (~85%) and the ramping up of the new capacities would enable strong volume growth and regional diversification.
The company's continued focus on premiumisation and brand-conscious home-builders enable Birla Corp’s highest premium-product share of peers along with a better product mix and higher share of blended cement. Further, its expanded operations in the price-disciplined central/northern regions (approximately 82 per cent capacity) aid its realisation/ton to be one of the highest. Its various cost optimisation efforts-set up WHRS and solar power plant, railway-siding, securing coal mines, etc. would boost profitability and return ratios.