Buy Birla Corporation; target of Rs 943: YES Securities

YES Securities' research report on Birla Corporation

BCORP posted volume de-growth of ~34% for Q1FY21 – which was in-line with industry de-growth. NSR of BCORP witnessed marginal decline of 0.5% y/y due to soft prices in East. Peer companies have delivered strong increase in NSR sequentially owing to pricing tailwinds in operating markets and higher share of trade mix (+10-15% shift in mix towards trade segment). However, operating markets of BCORP witnessed stable pricing while trade mix has been high historically for the company (80-85% of sales), leaving less scope for incremental improvement. Cost optimization measures and stable pricing translated into EBITDA/te of Rs 981 (-5% y/y). Absolute EBITDA stood at Rs 2,331 mn (-39.4% y/y) vs. our estimates of Rs 2,445 mn. We have upgraded EBITDA estimates by 5%/1.9% for FY21E/FY22E respectively due to better than anticipated demand and pricing in May-June combined with cost optimization measures.

Outlook

Accordingly, we expect peak net debt/EBITDA for BCORP at 3.3x in FY21E (despite factoring in that BCORP will not receive any subsidies in FY21E) vs previous est. of 3.6x. Currently BCORP is trading at EV/EBITDA of ~6.4x and EV/te of $62 on FY22E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 943/share (implied EV/EBITDA multiple of 8x on FY22E).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More