BIRLA CORPORATION LTD - Myirisbreport.myiris.com/firstcall/BIRJUTIN_20141125.pdf · BIRLA CORPORATION LTD S&P BSE SENSEX Highlights Birla Corporation Ltd (BCL), a flagship company

CMP 465.55

Target Price 531.00

ISIN: INE340A01012

NOVEMBER 25th

2014

BIRLA CORPORATION LTD

Result Update (PARENT BASIS): Q2 FY15

BUY

Index Details

Stock Data

Sector Cement

BSE Code 500335

Face Value 10.00

52wk. High / Low (Rs.) 614.85/226.00

Volume (2wk. Avg.) 7680

Market Cap (Rs. in mn.) 35852.01

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 30163.50 31973.31 35202.61

EBITDA 3813.80 4932.04 5587.19

Net Profit 1297.60 1874.74 2205.47

EPS 16.85 24.34 28.64

P/E 27.63 19.12 16.26

Shareholding Pattern (%)

1 Year Comparative Graph

BIRLA CORPORATION LTD S&P BSE SENSEX

Highlights

Birla Corporation Ltd (BCL), a flagship company of

M P Birla Group, operates four division cement, jute,

vinoleum and auto trim division.

Revenue for the quarter rose by 8.34% to Rs.

7811.10 million from Rs. 7209.90 million, when

compared with the prior year period.

Operating profit for the quarter increased by 0.44%

to Rs. 1012.00 million from Rs. 1007.60 million over

the corresponding quarter of the previous year.

During the quarter, PAT stood at Rs. 324.60 million

against Rs. 415.80 million in the corresponding

quarter of previous year.

Environmental clearance has been obtained for the

second phase of new Chanderia cement works from

1.2 million tons per year to 2.7 million tons per

year.

During the quarter, Cement Dispatches at 19.12 Lac

tons up by 3.24% and Cement Production at 19.10

Lac tons up by 3.92% to corresponding quarter of

previous year.

Raebareli plant is expected to be commissioned by

the first quarter of the financial year 2015-16.

The percentage of blended as a % of total cement

despatches continues to be high at about 85.36%.

Net Sales of the company are expected to grow at a

CAGR of 11% over 2013 to 2016E.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Birla Corporation Ltd 465.55 35852.01 16.85 27.63 1.42 60.00

JK Lakshmi Cement Ltd 384.95 45197.10 11.73 32.75 3.47 40.00

The Ramco Cements Ltd 346.10 82361.20 7.42 46.64 3.32 100.00

J. K. Cement Ltd 651.40 45550.60 22.59 28.84 2.59 30.00

Analysis & Recommendation – ‘BUY’

Birla Corporation Limited has achieved cement production of 19.10 lakh tons. Net Sales/Income from operations

for the second quarter of the current financial year stood at Rs 7811.10 million against Rs. 7209.90 million in the

previous corresponding quarter, grew by 8.34% .The despatch of cement stood at 19.12 lakh tons. EBIDTA at Rs.

1012.00 million grew by 0.44% as compared to the corresponding quarter of the previous year. The Profit after

Tax was Rs 324.60 million against Rs. 415.80 million in the previous corresponding quarter. During the quarter,

the realizations were better compared to the corresponding quarter of the previous year. The profitability of the

company suffered owing to all-round increase in costs, including pet coke, fly ash, gypsum, packaging material,

diesel as well as railway freight. The percentage of blended as a % of total cement despatches continues to be

high at about 85.36%. The Jute Division of the Company is focusing on increasing its presence in the overseas

market, development of value-added products and cost control. The demand for cement is likely to be

healthy in the coming months in view of the focus of the new Government on housing and infrastructural

activities. Hence, we recommend ‘BUY’ for ‘Birla Corporation Ltd’ with a target price of Rs. 531.00 for medium

and long term investment.

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY15

Birla Corporation Limited, the flagship Company of

the M P Birla Group and Cement major in India,

reported its financial results for the quarter ended

30th Sep, 2014.

Rs. In Million Sep-14 Sep-13 % Change

Net Sales 7811.10 7209.90 8.34

PAT 324.60 415.80 (21.93)

EPS 4.22 5.40 (21.93)

EBITDA 1012.00 1007.60 0.44

The company’s revenue for the quarter rose by 8.34% to Rs. 7811.10 million from Rs. 7209.90 million, when

compared with the prior year period. Net profit decrease by 21.93% to Rs. 324.60 million from Rs. 415.80 million

in Q2 FY14. EBDITA has risen by 0.44% YOY from Rs. 1007.60 million to Rs. 1012.00 million in current

September quarter. Reported earnings per share of the company stood at Rs. 4.22 a share during the quarter as

against Rs. 5.40 over previous year period.

Break up of Expenditure

Segment Revenue

In Million Q2 FY15 Q2 FY14

Cement 7194.50 6558.30

Jute 447.70 516.60

Others 28.90 32.20

Latest Updates

• During the quarter, the chanderia unit had to purchase about 2.7 lakh tons of limestone from the market.

• The percentage of blended as a % of total cement despatches continues to be high at about 85.36%.

Ongoing projects

� Raebareli: Work to set up a 5 lakh ton per annum blending unit has been progressing smoothly and the

plant is expected to be commissioned by the first quarter of the financial year 2015-16.

Rs. In Million Q2 FY15 Q2 FY14

Cost of Material Consumed 1203.00 1205.70

Purchase of Stock in Trade 1.70 10.70

Power & Fuel 2246.30 1802.90

Employee Benefit Expenses 572.70 574.20

Transport Clearing & Forwarding

Charges 1464.20 1327.40

Depreciation & Amortization Expense 391.40 310.90

Stores, Spare Parts and Packing

Materials 735.20 714.00

Other Expenses 1208.50 714.70

� Chanderia expansion: Environmental clearance has been obtained for the second phase of new

Chanderia cement works from 1.2 million tons per year to 2.7 million tons per year.

� Barnagar: Land for a green field grinding unit has been acquired and the project will be implemented

once environmental clearance is obtained.

Jute Division

The jute industry has only 90% of food grain and 20% of sugar are required to be packed in jute bags. The

order flow from the Government has drastically come down, resulting in pile-up of stocks across the industry

and has compelled the industry to resort to production cuts.

COMPANY PROFILE

Birla Corporation Ltd (BCL), a flagship company of M P Birla Group, operates four division cement, jute, vinoleum

and auto trim division. It was incorporated in 1919 by Madhav Prasadji as Birla Jute Manufacturing Company.

Later its steadily grew in a multiproduct corporation. The Company crossed the Rs. 1300 - crore turnover mark

and the name was changed to Birla Corporation in 1998.

Birla Corporation Limited, together with its subsidiaries, primarily engages in the manufacture and sale of

cement, jute goods, PVC floor covering products, and auto trims primarily in India. Its Cement division provides

ordinary portland cement, 43 and 53 grades, portland pozzolana cement (PPC), low alkali cement, portland slag

cement, low heat cement, and sulphate resistant cement under the Birla Cement SAMRAT, Birla Cement

KHAJURAHO, Birla Cement CHETAK, and Birla Premium Cement brand names.

Business Divisions:

Cement Division – BCL manufactures ordinary portland cement of 43 and 53 grades, fly ash- based portland

pozzolana cement portland slag cement and sulphate resistant cement. It has installed capacity of 5.8 million

tonnes.

Jute Division- It manufactures jute fibre that is eco-friendly and bio degradable. It has an installed capacity of

38000 million tonnes. It manufactures wide range of jute such as jute yarn, jute carpets, canvas, sacking bags,

decorative fabrics, etc.

Vinoleum division- It has a production capacity of 4860000 sq mtrs of cushion vinyl flooring and PVC Sheet.

Auto Trim Division- It manufactures door trims for automobile industry. It has clients like Maruti Udyog,

Mahindra & Mahindra, General Motors, Hindustan Motors and Tata Motors, among others.

FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31st, 2013 -2016E

BIRLA CORPORATION LTD. FY13A FY14A FY15E FY16E

SOURCES OF FUNDS

Shareholder's Funds

a) Share Capital 770.10 770.10 770.10 770.10

b) Reserves and Surplus 23730.50 24490.70 25638.17 27176.45

1. Sub Total - Net worth 24500.60 25260.80 26408.27 27946.55

Non Current Liabilities

a) Long term borrowings 8973.90 9163.10 10537.57 10853.69

b) Deferred Tax Liabilities 2116.90 2342.10 2356.15 2473.96

c) Other Long term Liabilities 2504.80 2766.80 2988.14 3137.55

d) Long Term Provisions 362.20 271.50 295.94 301.85

2. Sub Total - Non Current Liabilities 13957.80 14543.50 16177.80 16767.06

Current Liabilities

a) Short Term Borrowings 2778.90 1631.10 1125.46 1001.66

b) Trade Payables 1267.10 1547.40 2228.26 2540.21

c) Other Current Liabilities 2162.30 5001.90 4401.67 5149.96

d) Short Term Provisions 588.20 686.50 514.88 571.51

3. Sub Total - Current Liabilities 6796.50 8866.90 8270.26 9263.34

Total Liabilities (1+2+3) 45254.90 48671.20 50856.32 53976.95

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

i. Tangible assets 17282.33 18612.20 20473.42 21189.99

ii. Intangible assets 45.93 36.33 41.42 44.32

iii. Capital Work in Progress 2285.73 1416.67 1649.00 1714.96

a) Sub Total- Fixed Assets 19613.99 20065.20 20514.84 21234.31

b) Non-current investments 8979.31 3520.30 7207.26 7423.48

c) Long Term loans and advances 1350.40 1914.10 2373.48 2539.63

d) Other non-current assets 294.20 300.70 315.13 324.59

1. Sub Total - Non Current Assets 30237.90 25800.30 30410.71 31522.00

a) Current Investment 3728.00 9819.70 6579.20 7500.29

b) Inventories 5701.40 5151.10 5872.25 6048.42

c) Trade receivables 749.60 747.10 1228.23 1240.51

d) Cash and Bank Balances 2786.30 5010.80 4058.75 4781.48

e) Short-terms loans & advances 969.60 810.60 1170.51 1193.92

f) Other current assets 1082.10 1331.60 1536.67 1690.33

2. Sub Total - Current Assets 15017.00 22870.90 20445.61 22454.95

Total Assets (1+2) 45254.90 48671.20 50856.32 53976.95

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs.in.mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 26029.60 30163.50 31973.31 35202.61

Other Income 1271.20 1249.10 1398.99 1538.89

Total Income 27300.80 31412.60 33372.30 36741.51

Expenditure -22101.20 -27598.80 -28440.26 -31154.31

Operating Profit 5199.60 3813.80 4932.04 5587.19

Interest -648.60 -855.90 -777.16 -850.21

Gross profit 4551.00 2957.90 4154.89 4736.98

Depreciation -1043.90 -1325.80 -1604.22 -1756.62

Exceptional Items 0.00 -109.30 0.00 0.00

Profit Before Tax 3507.10 1522.80 2550.67 2980.36

Tax -808.90 -225.20 -675.93 -774.89

Net Profit 2698.20 1297.60 1874.74 2205.47

Equity capital 770.10 770.10 770.10 770.10

Reserves 23657.00 24417.30 25638.17 27176.45

Face value 10.00 10.00 10.00 10.00

EPS 35.04 16.85 24.34 28.64

Quarterly Profit & Loss Statement for the period of 31st Mar, 2014 to 31st Dec, 2014E

Value(Rs.in.mn) 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14E

Description 3m 3m 3m 3m

Net sales 7934.90 8748.20 7811.10 7420.55

Other income 439.80 421.20 291.90 239.36

Total Income 8374.70 9169.40 8103.00 7659.90

Expenditure -7225.80 -7310.30 -7091.00 -6678.49

Operating profit 1148.90 1859.10 1012.00 981.41

Interest -198.10 -192.10 -196.10 -186.30

Gross profit 950.80 1667.00 815.90 795.12

Depreciation -393.20 -391.30 -391.40 -407.06

Exceptional Items -109.30 0.00 0.00 0.00

Profit Before Tax 448.30 1275.70 424.50 388.06

Tax -186.30 -280.50 -99.90 -112.54

Net Profit 262.00 995.20 324.60 275.52

Equity capital 770.10 770.10 770.10 770.10

Face value 10.00 10.00 10.00 10.00

EPS 3.40 12.92 4.22 3.58

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 35.04 16.85 24.34 28.64

EBITDA Margin (%) 19.98 12.64 15.43 15.87

PBT Margin (%) 13.47 5.05 7.98 8.47

PAT Margin (%) 10.37 4.30 5.86 6.27

P/E Ratio (x) 13.29 27.63 19.12 16.26

ROE (%) 11.05 5.15 7.10 7.89

ROCE (%) 17.26 14.28 17.17 18.45

Debt Equity Ratio 0.48 0.43 0.44 0.42

EV/EBITDA (x) 7.90 8.34 7.48 6.34

Book Value (Rs.) 317.19 327.07 342.92 362.90

P/BV 1.47 1.42 1.36 1.28

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.465.55, the stock P/E ratio is estimated 19.12 x FY15E and 16.26 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.24.34 and

Rs.28.64 respectively.

� Net Sales of the company are expected to grow at a CAGR of 11% over 2013 to 2016E.

� On the basis of EV/EBITDA, the stock trades at 7.48 x for FY15E and 6.34 x for FY16E.

� Price to Book Value of the stock is expected to be at 1.36 x and 1.28 respectively for FY15E and FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.531.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The cement industry of any nation plays an important role in its development through the construction of

infrastructure. India's cement production has increased at a compound annual growth rate (CAGR) of 9.7 per

cent to reach 272 million tonnes (MT) during FY 06-13. Presently, India is the second largest producer of cement

in the world with a current capacity of around 370 MT which is expected to grow to 550 MT by FY 20.

India has huge potential in infrastructure and construction and the cement sector in India is set to receive a

major boost. The Government of India is allocating funds to several infrastructure projects in the urban as well as

rural areas, as per the Union Budget being announced recently in July 2014.

Also, many foreign companies are looking for investing in the Indian cement industry to cash in on the

opportunities in this market. For instance, Holcim Ltd and Lafarge SA are involved in major discussions to form a

potential global merger which could result in the formation of the largest cement maker in India, overtaking the

current market leaders, Ulltratech.

In addition, there are a number of notable infrastructural projects already coming up in the country. For instance,

Indian engineers are working in the Himalayas to build the world's highest railway bridge which is expected to

be 35 meters taller than the Eiffel Tower when completed in 2016.

Market size

Cement is a cyclical commodity with a high correlation with GDP. The housing sector is the biggest demand

driver of cement, accounting for about 67 per cent of the total consumption. The other major consumers of

cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction

at 9 per cent.

The cement industry in India is divided into five regions, viz, north, south, west, east and the central region. The

southern region of India has the highest installed capacity, accounting for about one-third of the country's total

installed cement capacity.

The cement sector in India is expected to witness positive growth in the coming years, with demand set to

increase at a CAGR of more than 8 per cent during FY 14-16.

The Indian cement industry is dominated by a few companies. The top 20 cement companies account for almost

70 per cent of the total cement production of the country. Ultratech Cement followed by Ambuja Cements and

ACC occupy the top three spots in the Indian cement market space.

Investments

The cement industry has been expanding on the back of increasing infrastructure activities and demand from the

housing sector over the past many years. According to data released by the Department of Industrial Policy and

Promotion (DIPP), cement and gypsum products attracted foreign direct investment (FDI) worth Rs 13,5464.7

million (US$ 2.23 billion) between April 2000 and June 2014.

Some of the major investments and developments in the Indian cement industry are as follows:

• To consolidate its cement operations, India Cements Ltd plans to merge with its subsidiary Trinetra

Cements Ltd and sell large portions of land near its plants in Tamil Nadu and Andhra Pradesh and focus

on real estate development, through its real estate arm.

• Ambuja Cement, part of the Holcim Group, plans to invest Rs 802 crore (US$ 132.57 million) in 2014 in

various ongoing projects. The company has proposed to fund the entire capital expenditure (capex)

through internal accruals, as per Ambuja Cement's annual report.

• Ultratech Cement Limited recently supplied white topping concrete for the Nandi Infrastructure Corridor

Enterprise (NICE) Road in Bangalore, Karnataka.

• Dalmia Bharat Group Foundation (DBGF) has partnered with New and Renewable Energy Development

Corporation of Andhra Pradesh, Limited (NREDCAP) - a State Government Company, for the promotion of

biogas plants in Kadapa district.

• Prism Cement Ltd has recently started production at the Prism Coal Mine in Chindwara, Madhya Pradesh.

The company has been granted all statutory clearance for the operation of the mine and the mined coal

will be used for captive consumption at the cement plant located at Satna, Madhya Pradesh.

Government Initiatives

The Government of India's keen focus on the development of infrastructure in the country has given a big boost

to the cement industry in India. In its 12th Five Year Plan, the government plans to increase investment in

infrastructure to the tune of US$ 1 trillion and increase the industry's capacity to 150 MT.

The government incorporated the Cement Corporation of India (CCI) in 1965 to achieve self-sufficiency in

cement production in the country. Currently, CCI has 10 units spread over eight states in India.

In order to help the private sector companies thrive in the industry, the government has been approving their

investment schemes. Some such initiatives are as follows:

• Ambuja Cements Ltd's Concrete Futures Laboratory (CFL) has received accreditation for tests in concrete

from National Accreditation Board for Testing and Calibration Laboratories (NABL) under the

Department of Science & Technology, Government of India. The company received accreditation for 13

tests.

• An expert appraisal committee under the Ministry of Environment, Government of India, has given its

approval to India Cements to double its capacity and set up a 40 megawatt (MW) power plant at one of its

facilities in Tamil Nadu. The proposed expansion project will come up at Dalavoi in Ariyalur district.

Road Ahead

The Indian cement industry, being the second largest in the world, is globally competitive. With the Government

of India providing enough scope in infrastructure development, there is a lot of hope for the cement sector.

Following the release of the Union Budget in July 2014, cement companies are hoping for some reforms like

reduction in excise duties, which will go a long way in the betterment of this sector.

In addition, with the ever-increasing industrial activities, real estate, construction and infrastructure, and with

the Special Economic Zones (SEZs) being developed across the country, the demand for cement in India is slated

to increase in the upcoming years.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – [email protected]

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