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RESULTS REVIEW 2QFY18 13 NOV 2017
Birla Corp BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Off-season, steady delivery Birla Corp’s (BCORP) numbers beat estimates (Rs 638/t, Est Rs 484, (1.0)/(10.9)% YoY/QoQ). The beat was primarily on account of lower other operating expenses (Rs 1.0bn vs Rs 1.5bn run-rate in previous 2 quarters). Numbers are not comparable YoY, due to Acquired ops being included from August 22, 2016. The 2QFY18 delivery was in spite of the severe sand shortages in UP and Bihar.
Birla Corp remains relatively undervalued (11.4/10.0x EV/EBITDA for FY19/20), compared to large cement companies which trade at 15/13x. It is the best play on Central India, which is not expected to see any significant capacity additions in the near future, driving high utilizations. Higher leverage (FY18E Net Debt/EBITDA: 4.6x, Net D/E: 1.2x) vs peers (mostly debt free) and lower profitability in the standalone ops, may weigh on further rerating. We maintain BUY with and upgrade our TP (Rs 1,455, 12.0x Sep-19 EV/EBITDA US$138/t).
Other Key Highlights
Like for like, volume growth stood at 10%, a good outcome given sand shortage in two key markets. Pricing remained under pressure for most markets that BCorp operates in. BCorp also faced issues with pet-coke usage in both its MP plants due to NGT order, which has since been clarified. Chanderia ops continue to be dependent on purchased limestone, driving lower profitability in the standalone ops. Acquired ops delivered an EBITDA of Rs1.01bn.
Near-term outlook: Strong reversal in demand is expected in the states impacted by sand shortage, once the issues around sand supply are resolved. Volumes should also rebound from the seasonally weaker numbers delivered in 2Q, and we expect that the price increases in 2HFY18 should offset the cost pressures from rising petcoke. We have revised our FY18 estimates marginally downwards to account for somewhat lower pricing YTD.
Financial Summary(Consolidated) (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) FY16 FY17 FY18E FY19E FY20E Net Sales 12,355 9,445 30.8 14,588 (15.3) 32,682 43,477 55,877 60,200 63,483 EBITDA 1,768 1,294 36.6 2,404 (26.5) 3,029 6,451 9,327 11,350 12,273 PAT 15 654 (97.8) 307 -95 1,678 2,195 2,419 3,932 4,827 Diluted EPS (Rs) 0.2 8.5 (97.8) 4.0 -95 21.8 28.5 31.4 51.1 62.7 P/E (x) 55.8 42.6 38.7 23.8 19.4 EV / EBITDA (x) 29.4 21.1 14.4 11.4 10.0 RoE (%) 5.8 7.0 7.1 10.7 11.9 Source: Company, HDFC sec Inst Research, YoY numbers not comparable given Acquired Ops consolidated from August 22, 2016
INDUSTRY CEMENT CMP (as on 10 Nov ’17) Rs 1,215 Target Price Rs 1,455 Nifty 10,322
Sensex 33,315
KEY STOCK DATA
Bloomberg BCORP IN
No. of Shares (mn) 77
MCap (Rs bn) / ($ mn) 94/1,436
6m avg traded value (Rs mn) 97
STOCK PERFORMANCE (%)
52 Week high / low Rs 1,229 / 608
3M 6M 12M
Absolute (%) 28.0 56.8 60.2
Relative (%) 22.3 46.6 39.1
SHAREHOLDING PATTERN (%)
Promoters 62.90
FIs & Local MFs 15.52
FPIs 3.04
Public & Others 18.54
Source : BSE
Ankur Kulshrestha, CFA [email protected] +91-22-6171 7346
Meera Midha [email protected] +91-22-6171 7334
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Quarterly Financials Snapshot (Consolidated) (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) Net Sales 12,355 9,445 30.8 14,588 (15.3)
Cement 11,597 8,418 37.8 13,834 (16.2) Jute & Other 743 999 (25.6) 733 1.4
Power & Fuel 3,062 2,167 3,542 Freight Expenses 3,045 1,948 3,454 RM Costs 1,725 1,520 1,971 Employee costs 908 732 846 (Increase)/Decrease in stock -131 -87 -90 Other Operating Expenses 1,977 1,871 5.7 2,461 (19.7) EBITDA 1,768 1,294 36.6 2,404 (26.5) Other operating income 0 0 0 Other Income/(expense) 119 450 (73.6) 161 (25.9) Interest Cost 1,053 527 937 Depreciation 831 569 832 E/O 0 0 125 PBT 3 648 (99.6) 671 (99.6) Tax -12 -6 239 RPAT 15 654 (97.8) 432 (96.6) E/o (adj for tax) 0 0 -125 APAT 15 654 (97.8) 307 (95.2) Source: Company, HDFC sec Inst Research Per Tonne Analysis Per tonne data 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) Volumes (cement & clinker, mT) 2.65 1.80 47.0 3.28 (19.2) Blended realisations (Rs/T) 4,376 4,673 (6.4) 4,219 3.7 P&F costs (Rs/T) 1,156 1,202 (3.8) 1,080 7.0 Freight costs (Rs/T) 1,149 1,080 6.4 1,053 9.1 RM costs (Rs/T) 651 843 (22.8) 599 8.8 Other costs (Rs/T) 376 593 (36.5) 449 (16.2) Cement EBITDA/T (Rs/t) 638 645 (1.1) 716 (11.0) Cement costs/t 3,739 4,029 (7.2) 3,502 6.7 Source: Company, HDFC sec Inst Research Cement Realisations and EBITDA/t calculated by adjusting for Jute reported PBIT and pro-rata FY17 segment depreciation
Sharply lower other operating expenses drove the beat (EBITDA: Rs 1.77bn, 36.6/(26.5)% YoY/QoQ, Est Rs 1.4 bn) Strong surge in freight costs offset some of the realisation gains. The increase in P&F and RM costs is mostly on expected lines
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Quarterly Financials Snapshot (Standalone) (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) Net Sales 7,966 7,692 3.6 9,662 (17.6)
Cement 7,208 6,673 8.0 8,908 (19.1) Jute & Other 758 1,018 (25.6) 754 0.5
Power & Fuel 2,092 1,713 2,266 Freight Expenses 2,022 1,657 2,380 RM Costs 1,355 1,412 1,548 Employee costs 645 658 655 (Increase)/Decrease in stock -162 -81 133 Other Operating Expenses 1,252 1,566 1,639 EBITDA 762 766 (0.6) 1,040 (26.7) Other operating income 0 43 0 Other Income/(expense) 81 443 (81.8) 190 (57.4) Interest Cost 446 303 398 Depreciation 360 374 358 E/O 0 0 -125 PBT 37 574 (93.6) 349 (89.5) Tax (8) (10) 71 RPAT 44 584 (92.5) 278 (84.2) E/o (adj for tax) 0 0 125 APAT 44 584 (92.5) 403 (89.1) Source: Company, HDFC sec Inst Research
Lower other operating expenses led to a strong outcome in standalone operations.
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Quarterly Financials Snapshot (Acquired ops) (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) Net Sales 4,389 1,753 150.4 4,926 (10.9) Power & Fuel 971 454 1,276 Freight Expenses 1,023 291 1,074 RM Costs 371 108 422 Employee costs 262 74 191 (Increase)/Decrease in stock 31 -6 -224 Other Operating Expenses 724 305 822 EBITDA 1,007 528 90.8 1,365 (26.2) Other operating income 0 -43 0 Other Income/(expense) 38 7 416.2 -29 (230.8) Interest Cost 607 224 539 Depreciation 471 195 474 PBT (34) 74 N/M 323 N/M Tax -4 4 169 APAT (29) 70 N/M ` 154 N/M Source: Company, HDFC sec Inst Research Note: 2QFY17 represents a period between August 22, 2016 to September 30, 2016
The acquired operations continue to deliver good numbers
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Peer Valuations
Company MCap (Rs bn)
CMP (Rs) Rating TP
(Rs) EV/EBITDA (x) P/E (x) EV/T (US$) FY19E FY20E FY19E FY20E FY19E FY20E
UltraTech Cement 1,222.4 4,451 NEU 3,380 16.9 13.6 45.8 30.7 237 228 Shree Cement 629.0 18,055 NEU 14,565 14.4 11.9 22.7 20.1 237 224 Ambuja Cement1 536.3 270 SELL 200 14.5 12.1 23.2 18.7 174 168 ACC1 330.1 1,754 SELL 1,300 12.9 11.1 23.7 19.5 145 144 Ramco Cements 166.1 698 NEU 456 12.8 13.0 19.9 20.7 213 212 Birla Corp 93.5 1,215 BUY 1,455 11.4 10.0 23.8 19.4 135 129 Orient Cement 34.1 167 NEU 165 10.5 8.6 19.5 13.3 101 94 Sanghi Industries 25.8 117 NEU 83 6.6 5.4 10.7 9.3 111 96 Deccan Cements 8.0 574 BUY 1,468 4.6 5.1 8.8 9.8 50 49 Note: Prices as of November 10, 2017, close. US$: INR = 64.67 1December YE
Key Assumptions Year Ending March FY16 FY17 FY18E FY19E FY20E Cement volumes (mn t) 8.09 10.08 12.54 12.69 12.77
Standalone 7.87 8.14 8.09 8.02 Reliance 2.25 4.40 4.60 4.75
Realizations (Rs/t) 3,638 3,978 4,199 4,491 4,719 P&F cost/t (Rs/t) 958 961 984 1,026 1,064 Raw material cost/t (Rs/t) 764 659 618 637 669 Freight cost/t (Rs/t) 969 980 999 1,029 1,061 EBITDA/t 319 587 718 869 935 Costs/t 3,319 3,391 3,481 3,622 3,783 Source: Company, HDFC sec Inst Research Note: Acq Ops included from FY17. Standalone nos till FY16. P&F, Raw Materials and Freight costs only reflective of standalone ops.
The stock trades at US$141/t and 14.4 FY18 EV/EBITDA
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Changes to estimates
Old New %Change
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Volumes (mT) 11.94 12.53 12.67 12.5 12.7 12.8 5.0 1.2 0.8 Realisations (Rs/T) 4,347 4,533 4,727 4,199 4,491 4,719 (3.4) (0.9) (0.2) Revenues (Rs mn) 55,128 60,023 63,118 55,877 60,200 63,483 1.4 0.3 0.6 EBITDA (Rs mn) 9,980 11,574 12,195 9,327 11,350 12,273 (6.5) (1.9) 0.6 PAT (Rs mn) 2,954 4,144 4,809 2,419 3,932 4,827 (18.1) (5.1) 0.4 Source: HDFC sec Inst Research
We have revised our FY18 estimates marginally downwards to account for somewhat lower pricing YTD.
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Like for like volume growth at 10% Blended realisations trended higher
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
EBITDA/t at Rs 638/t Expansion in op costs driven by higher freight
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
(20.0)
(10.0)
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10.0
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0.0
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2.0
2.5
3.0
3.5
2QFY
124Q
FY12
2QFY
134Q
FY13
2QFY
144Q
FY14
2QFY
154Q
FY15
2QFY
164Q
FY16
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174Q
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18
Sales volume (mT) YoY(%)
mnT
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124Q
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134Q
FY13
2QFY
144Q
FY14
2QFY
154Q
FY15
2QFY
164Q
FY16
2QFY
174Q
FY17
2QFY
18
Cement realisations (Rs/T) YoY (%)
Rs/T %
(100.0)
(50.0)
-
50.0
100.0
150.0
200.0
250.0
0100200300400500600700800900
2QFY
124Q
FY12
2QFY
134Q
FY13
2QFY
144Q
FY14
2QFY
154Q
FY15
2QFY
164Q
FY16
2QFY
174Q
FY17
2QFY
18
EBITDA/T (Rs) YoY (%)Rs/T %
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2QFY
12
4QFY
12
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13
4QFY
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2QFY
14
4QFY
14
2QFY
15
4QFY
15
2QFY
16
4QFY
16
2QFY
17
4QFY
17
2QFY
18
P&F Costs/T RM cost/T Freight cost/T
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Income Statement (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Net Revenues 32,682 43,477 55,877 60,200 63,483 Growth % 3.7 33.0 28.5 7.7 5.5 Material Expenses 19,601 23,890 26,574 27,852 29,173 Employee Expenses 2,437 3,063 3,633 3,961 4,319 SG&A Expenses 7,737 10,235 13,284 13,796 14,300 Operating profits 2,861 6,229 9,312 11,334 12,256 Operating Profit Margin (%) 8.8 14.3 16.7 18.8 19.3 Other operating income 168 223 14 16 17 EBITDA 3,029 6,451 9,327 11,350 12,273 EBITDA % 9.3 14.8 16.7 18.9 19.3 EBITDA Growth % 0.4 113.0 44.6 21.7 8.1 Depreciation 1,488 2,555 3,046 3,091 3,137 EBIT 1,541 3,896 6,281 8,259 9,137 Other Income (including EO items) 1,291 1,175 800 713 1,052
Interest 823 2,768 4,057 4,057 4,155 PBT 2,010 2,303 3,024 4,915 6,034 Tax 332 108 605 983 1,207 RPAT 1,678 2,195 2,419 3,932 4,827 EO (Loss) / Profit (Net Of Tax) - - - - - APAT 1,678 2,195 2,419 3,932 4,827 APAT Growth (%) (4.4) 30.8 10.2 62.5 22.8 Adjusted EPS (Rs.) 21.8 28.5 31.4 51.1 62.7 EPS Growth (%) (8.5) 30.8 10.2 62.5 22.8
Source: Company, HDFC sec Inst Research Note: RCCPL included from FY17. Standalone nos till FY16
Balance Sheet Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital 770 770 770 770 770 Reserves 28,483 32,280 34,143 37,519 41,789 Total Shareholders’ Funds 29,253 33,050 34,913 38,289 42,559 Long Term Debt 7,897 40,491 40,491 40,491 40,491 Short Term Debt 5,162 2,837 2,623 2,623 2,623 Total Debt 13,059 43,328 43,114 43,114 43,114 Deferred Taxes 1,830 5,645 5,645 5,645 5,645 Long Term Provisions & Others 3,883 4,581 4,581 4,581 4,581 TOTAL SOURCES OF FUNDS 48,024 86,604 88,253 91,629 95,899 APPLICATION OF FUNDS Net Block 20,408 54,464 52,416 50,325 48,189 CWIP 634 8,053 8,303 8,553 8,804 Goodwill 2 9,356 9,356 9,356 9,356 Investments 1,046 2,198 2,198 2,198 2,198 LT Loans and Advances 1,275 1,793 1,793 1,793 1,793 Total Non-current Assets 23,363 75,864 74,066 72,225 70,340 Inventories 5,674 6,302 7,549 8,210 8,213 Debtors 942 1,325 2,196 1,598 2,403 Other Current Assets 2,704 6,797 6,797 6,797 6,797 Cash & Equivalents 19,530 6,614 8,139 13,420 18,973 Total Current Assets 28,850 21,037 24,680 30,024 36,385 Creditors 1,627 3,679 3,876 4,003 4,208 Other Current Liabilities &Provns 2,562 6,619 6,619 6,619 6,619
Total Current Liabilities 4,189 10,298 10,496 10,622 10,827 Net Current Assets 24,661 10,740 14,185 19,402 25,557 TOTAL APPLICATION OF FUNDS 48,024 86,604 88,253 91,629 95,899 Source: Company, HDFC sec Inst Research
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Cash Flow Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Reported PBT 2,010 2,303 3,024 4,915 6,034 Non-operating & EO items (956) 4,370 (800) (713) (1,052) Interest expenses 823 2,768 4,057 4,057 4,155 Depreciation 1,473 2,405 3,046 3,091 3,137 Working Capital Change (163) 3,193 (1,920) 64 (603) Tax paid (332) (108) (605) (983) (1,207) OPERATING CASH FLOW ( a ) 2,854 14,931 6,802 10,431 10,464 Capex (1,909) (53,234) (1,250) (1,250) (1,252) Free cash flow (FCF) 945 (38,303) 5,552 9,181 9,212 Investments 175 (1,152) 0 0 0 Non-operating Income 956 (4,370) 800 713 1,052 INVESTING CASH FLOW ( b ) (778) (58,756) (450) (537) (200) Debt Issuance/(Repaid) (346) 34,084 (214) 0 0 Interest expenses (823) (2,768) (4,057) (4,057) (4,155) FCFE 733 (11,357) 2,081 5,837 6,109 Share Capital Issuance 0 0 0 0 (770) Dividend (556) (556) (556) (556) (556) FINANCING CASH FLOW ( c ) (1,725) 30,760 (4,827) (4,613) (4,712) NET CASH FLOW (a+b+c) 351 (13,065) 1,525 5,281 5,553 EO Items/Others (31) (150) Closing Cash & Equivalents 19,530 6,614 8,139 13,420 18,973
Source: Company, HDFC sec Inst Research
Key Ratios FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) EBITDA Margin 9.3 14.8 16.7 18.9 19.3 APAT Margin 5.1 5.0 4.3 6.5 7.6 RoE 5.8 7.0 7.1 10.7 11.9 Core RoCE 6.2 8.6 7.5 10.0 11.3 RoCE 6.9 8.8 7.6 9.3 10.1 EFFICIENCY Tax Rate (%) 16.5 4.7 20.0 20.0 20.0 Asset Turnover (x) 1.0 0.7 0.6 0.7 0.7 Inventory (days) 63 50 45 48 47 Debtors (days) 11 11 12 12 12 Payables (days) 18 22 25 24 24 Cash Conversion Cycle (days) 55 39 32 35 35 Debt/EBITDA (x) 4.6 4.5 4.6 3.8 3.5 Net D/E 0.45 1.31 1.23 1.13 1.01 Interest Coverage 3.5 2.3 2.3 2.8 2.9 PER SHARE DATA EPS (Rs/sh) 21.8 28.5 31.4 51.1 62.7 CEPS (Rs/sh) 40.9 59.7 71.0 91.2 103.4 DPS (Rs/sh) 6.0 6.0 6.0 6.0 6.0 BV (Rs/sh) 379.9 429.2 453.4 497.2 552.7 VALUATION P/E 55.8 42.6 38.7 23.8 19.4 P/BV 3.2 2.8 2.7 2.4 2.2 EV/EBITDA 29.4 21.1 14.4 11.4 10.0 OCF/EV (%) 3.3% 11.5% 5.3% 8.5% 8.9% FCF/EV (%) 1.1% (29.4%) 4.3% 7.4% 7.8% FCFE/Market Cap (%) 0.8% (12.1%) 2.2% 6.2% 6.5% Dividend Yield (%) 0.5 0.5 0.5 0.5 0.5 Source: Company, HDFC sec Inst Research
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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RECOMMENDATION HISTORY
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
500600700800900
1,0001,1001,2001,3001,4001,500
Nov-
16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-
17
May
-17
Jun-
17
Jul-1
7
Aug-
17
Sep-
17
Oct
-17
Nov-
17
Birla Corp TPDate CMP Reco Target
9-Feb-17 745 NEU 678 29-May-17 769 BUY 1,005 13-Aug-17 929 BUY 1,160 6-Oct-17 920 BUY 1,160
13-Nov-17 1,215 BUY 1,455
BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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Disclosure: We, Ankur Kulshrestha, PGDBM & Meera Midha, IDM, 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. HSL has no material adverse disciplinary history as on the date of publication of this report. 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. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. 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BIRLA CORPORATION : RESULTS REVIEW 2QFY18
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