Birla Corp: Good market mix at great value; Buy; target Rs452 (Motilal oswal).

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Birla Corp: Good market mix at great value; maintain Buy
Volume growth
 We expect volume growth to improve to
10.8% CAGR over FY11-13, as against 6.5%
CAGR over FY09-11.
 Volume growth over the next two years would
be driven by ramp-up at the 1.7m-ton
expanded capacities.
 The company is adding a further 2.7m-ton
capacity through the brownfield route in
Rajasthan, which would be fully operational
by 2QFY13.
Market/business mix
 Birla Corp is a regional player focused on
North, Central and East India.
 Incremental volumes are expected to be driven
by the North and Central regions. These
markets have seen the highest price
increases on QoQ basis.
 We expect 4QFY11 realization to improve by
Rs22/bag QoQ.
 Its non-cement business contribution is
expected to remain stable at 7.7% of revenues.
Cost and profitability
 Birla Corp has high dependence on domestic
coal at ~70%, with linkage coal contributing
~65% of its total fuel requirement.
 We estimate Rs4-5/bag increase in energy
cost due to increase in prices of domestic
linkage coal by Coal India.
 We expect EBITDA/ton to improve by Rs440
QoQ in 4QFY11 to Rs1,159 and by Rs124
in FY12 to Rs1,055.

Valuation and view
 Birla Corp is an efficient cement manufacturer,
with above average operating matrices.
 It has very strong balance sheet, with net cash
of Rs84/share in FY11 (~27% of market cap).
 The stock is valued at 4.8x FY12E EPS, and
at an EV of 2.7x FY12E EBITDA and US$52/
ton (~7.5m-ton capacity). Maintain Buy, with
a target price of Rs452 (~4x FY12E EV/
EBITDA).


Birla Corp: Good market mix at great value; maintain Buy
 Well-placed for volume growth: We expect
volume growth to improve to 10.8% CAGR over
FY11-13 as against 6.5% CAGR over FY09-
11. Volume growth would be driven by rampup
at the 1.7m-ton expanded capacities as well
as further capacity addition of 2.7m tons (to
commission operations by 2QFY13).
 Favorable market mix: It is a regional player
focused on North, Central and East India.
Incremental volumes are expected to be driven
by the North and Central regions. These
markets have seen the highest price increases
on QoQ basis. We expect Birla Corp's 4QFY11
realization to improve by Rs22/bag QoQ.
 High dependence on domestic coal: Birla
Corp has high dependence on domestic coal at
~70%, with linkage coal contributing ~65% of
its total fuel requirement. We estimate Rs4-5/
bag increase in energy cost due to increase in
domestic linkage coal prices by Coal India.
 Return ratios to improve, with deployment
of excess cash: It has undertaken a aggressive
capex plan of Rs16b. This would take its total
capacity to 11.8m tons by FY13-14. We expect
net cash to reduce from Rs108/share in FY11
to Rs84/share in FY12.



Birla Corp: Valuation and view
 Birla Corp is an efficient cement manufacturer,
with above average operating matrices.
 It has very strong balance sheet, with net cash
of Rs84/share in FY12 (~27% of market cap).
 The stock is valued at 4.8x FY12E EPS, and at
an EV of 2.7x FY12E EBITDA and US$52/
ton (~7.5m-ton capacity). It is available at a
significant discount to comparable peers, which
we believe is not justified.
 Maintain Buy, with a target price of Rs452 (~4x
FY12E EV/EBITDA).