Buy Birla Corporation; target Rs 408: Motilal Oswal

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Buy Birla Corporation; target Rs 408: Motilal Oswal

Motilal Oswal is bullish on Birla Corporation and has recommended buy rating on the stock with a target of Rs 408 in its July 27, 2011 research report.

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Motilal Oswal is bullish on Birla Corporation and has recommended buy rating on the stock with a target of Rs 408 in its July 27, 2011 research report.

"Birla Corporation's 1QFY12 performance was better than expected, with EBITDA margin of 26.5% (v/s our estimate of 20.9%) and PAT of INR 1.12b (v/s our estimate of INR 847m). Stable realizations and lower costs (on QoQ basis) aided profitability. Cement volumes grew 2% YoY (flat QoQ) to 1.52mt (v/s our estimate of 1.48mt). Realizations improved by 1% QoQ (declined 2.5% YoY) to INR 3,423/ton (v/s our estimate of INR 3,330/ton). Net sales declined 3% YoY (~5% QoQ) to INR 5.6b (v/s our estimate of INR 5.5b). EBITDA margin expanded 11.9pp QoQ (declined 210bp YoY) to 26.5% (v/s our estimate of 20.9%) and PAT grew 77% QoQ (declined 5% YoY) to INR 1.12b (v/s our estimate of INR 847m). Cost/ton decreased by INR 230/ton QoQ (increased by INR 130/ton YoY) driven by normalized operations at Satna plant and lower other expenses. We had estimated savings of INR 115/ton QoQ. The company plans to invest INR 16b to expand total capacity to 10.8mt and enhance supporting infrastructure by FY13-14. This is the most aggressive capex undertaken by the company in the last few years."

"We are marginally downgrading our EPS estimates by 2% for FY12 to INR 51 and by 1% for FY13 to INR 58.4, as there has been a sharp decline in prices in its key markets of East and Central India. The stock trades at 6.4x FY12E EPS, and at an EV of 4.7x FY12E EBITDA and USD67/ton. Maintain Buy for target of Rs 408," says Motilal Oswal research report.

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