Birla Corp -- Subdued performance; 2HFY11 to be better; Buy :: Anand Rathi

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Birla Corp.
Subdued performance; 2HFY11 to be better; Buy


 2QFY11 results. Birla Corp.’s 2QFY11 profits matched estimates
though EBITDA came lower. We estimate an improvement in
2HFY11 based on price recovery, volume growth and cost savings.
We maintain our target price of `490 and re-iterate a Buy.
 Realisations drop 14% yoy. Cement volumes rose 7.5% yoy to
1.38m tons (down 6.6% qoq). At `3,123/ton, realizations dropped
14% yoy and 12% qoq. Jute division recovery continued with yoy
growth of 36% (`497m) in revenue and 298% (`47m) in PBIT.
 EBITDA/ton drops to `510. Realisation pressures and increase in
costs led to a drop in EBITDA/ton, to ~`510 (`1,485 yoy, `1,090
qoq). We expect a recovery in 2HFY11 driven by higher realisations
(uptick in cement prices), better volumes and lower cost. With the
Satna unit expansion (1.5m tons) during the quarter and recovery in
industry demand, volumes are expected to rise. Overall, costs went
up mainly due to pet coke and freight. Higher costs due to clinker
outsourcing also led to lower profitability. On the stabilization of the
Satna kiln, clinker costs would come down.
 Expansion. The Satna clinker and grinding unit was commissioned
during the quarter adding 1.5m tons to earlier 6m tons. Waste heat
recovery power plants of 15MW also got on-stream in Oct ’10. Work
on an additional 1.8m tons of cement and 68 MW is progressing as
per schedule and commissioning is slated for Mar ’12.
 Valuation. Our target of `490 is based on 4x FY12e EV/EBITDA,
~50% discount to our target multiple for large-cap cement
companies, in line with its eight-year average. The target price implies
a PE of 6.7x and an EV per ton of US$70.