Birla Corp (2QFY15) : Clinker addition required. NEUTRAL :: HDFC Securities, PDF link

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Clinker addition required
Birla Corp (BCORP) posted a weak quarter with
EBITDA/t at Rs 314/t (vs. est Rs 422/t, 29.7% YoY, -
49.7% QoQ). While still up ~34% YoY, EBITDA at Rs
600 mn was disappointing as volumes were below
estimates (1.91 mT, 3.2% YoY) due to base effect. RM
costs moderated on expected lines, as proportion of
purchased limestone came down. We believe further
moderation is not likely. Costs were flat as spike in
P&F costs was neutralized by moderation RM.
BCORP has undergone a strong rerating recently,
driven by incremental gains from the resumption of
Chanderia mining and overall improvement in
expectations from the demand side. We believe that
any further rerating on the stock will be driven by 1)
additional relief in mining operations at Chanderia
which will drive the RM cos further low (Next hearing
in SC on Nov 17) and 2) clarity on further clinker
capacity addition (current slate only includes
grinding/blending capacity adds).
 Other updates: Volume growth tapered off as the
impact of resumption of limestone mining at Chanderia
in 1QFY14 is no longer included in the base. As
reported, BCORP purchased ~0.27 mT limestone at
Chanderia (~40% of requirement at 85% capacity
utilization per our calcs). P&F costs were higher due to
non-availability of linkage coal due to shortage of
railways rakes. Downtime on CPPs led to drawdown of
costlier grid power, affecting operations. Further,
prices of pet-coke were higher as well. Reported nos
included large inventory add (Rs 341mn, likely clinker).
 Outlook and view: BCORP is adding 4.5 mTPA of
grinding/blending capacity at various locations in M.P.,
U.P, Bihar and Jharkhand. Chanderia operation may be
expanded by 1.5 mTPA (~1 mTPA clinker) once
pollution clearance for additional limestone mining is
achieved. Otherwise, visibility on clinker capacity
addition remains low. With current capacity expected
to hit 90% utilization levels in FY16, announcement of
further clinkering capacity is crucial. Maintain
NEUTRAL with a TP of Rs 490 (7.0x FY16 EV/EBITDA)

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009628