Buy Birla Corp; target of Rs 311: Networth Stock Broking

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Buy Birla Corp; target of Rs 311: Networth Stock Broking

Networth Stock Broking is bullish on Birla Corporation and has recommended buy rating on the stock with a target of Rs 311 in its February 3, 2012 research report.

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Networth Stock Broking is bullish on Birla Corporation and has recommended buy rating on the stock with a target of Rs 311 in its February 3, 2012 research report.

"We are positive on Birla Corporation Ltd. (BCL) due to 1) Its exposure to better performing markets 2) Upcoming capacity to drive volume growth 3) Low gearing level 4) attractive valuations. Our FY13E target price of Rs 311 values the Company at EV/tonne of US$50 which implies 17% upside from the CMP. We initiate coverage on Birla Corporation with a BUY rating."

"We expect volume growth to improve to 6% CAGR over FY11-14E as against 4% CAGR over FY08-11. Volume growth would be driven by 2.7 million TPA cement expansion at Chanderia (Rajasthan) and 0.6 million TPA At Durgapur (West Bengal) by FY14E. BCL's sales volume comes from North (35%), East (25%) and Central (40%) regions. We expect the Company to benefit as these regions will see substantial reduction in incremental supply from new & existing players and improvement in demand in FY13E. We expect that the total capex for the expansion (3.3 million TPA cement capacity + 102.5 MW thermal power plant) of Rs 16 bn to be incurred by FY14E would be largely funded through internal cash flows. In case any additional funding is required for further expansion, considering its low gearing (FY 14E D/E at 0.5); we expect it to be easily accommodated by the balance sheet."

"On EV/EBITDA basis, the Company is trading at 4.3x FY12E EBITDA and 3.6x FY13E EBITDA respectively. We have valued the business (FY13 capacity) at EV/ton of US$ 50 which is at 50% discount to the replacement cost. Our FY13E end target price of the stock stands at Rs 311 which implies 17% return. We recommend "Buy" at current market price," says Networth Stock Broking research report.   

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To read the full report click on the attachment