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22 November 2016
2QFY17 Res ul ts Update | Sector: Cement

Birla Corpora on
BSE SENSEX S&P CNX
25,961 8,002
CMP: INR655 TP: INR759 (+16%) Buy
Bloomberg BCORP IN Volumes impacted by heavy rains
Equity Shares (m) 77.0
Realiza ons rm despite weak volumes: Birla Corpora on (BCORP) reported a
M.Cap.(INR b)/(USD b) 50.4 / 0.7
52-Week Range (INR) 807 / 322 decline in volumes by 10% YoY to 1.76mt and revenues by 3.2% YoY to INR7.7b
1, 6, 12 Rel. Per (%) -3/67/51 (13% miss) in 2QFY17 due to heavy rains and oods in its focus markets.
Avg Val,( INR m) 49 Realiza ons were rm (+5.3% YoY) as prices were stable in the north and
Free oat (%) 37.1
central markets. Jute revenues rose 15% YoY to INR991m. PAT of INR584m
Financials & Valua ons (INR b) (1.5x YoY) came in lower than es mate, led by higher interest cost.
Y/E Mar 2016 2017E 2018E Sequen ally subdued margins due to nega ve opera ng leverage: EBITDA
Sales 32.3 40.2 45.3 stood at INR766m (+45% YoY), transla ng into margin of 10.0% (+3.4pp YoY, -
EBITDA 2.4 4.4 5.6
4.6pp QoQ). Cement EBITDA/t stood at INR493 (+INR228/t YoY, -INR183/t
NP 1.6 3.1 3.9
QoQ). Unitary cost of produc on increased QoQ due to 1) inferior fuel
Adj. EPS (INR) 20.4 39.9 51.2
EPS Gr. (%) -10.3 95.5 28.1 consump on norm on account of shutdowns and 2) increase in cost of stores
BV/Sh. (INR) 351.8 449.2 475.8 due to brick lining of kilns at Satna and Chanderia. Impact of higher fuel prices
RoE (%) 5.9 10.0 11.1 would be seen in subsequent quarters due to low-cost inventory.
RoCE (%) 5.4 8.4 8.9 Reliance acquisi on completed: BCORP seamlessly completed the acquisi on
Payout (%) 56.9 29.1 22.7
of Reliance Cement opera ons in 2QFY17. It paid out INR22b on 22-Aug 2016
P/BV (x) 1.9 1.5 1.4
EV/EBITDA (x) 18.9 7.7 5.7
toward purchase considera on of shares of Reliance Cement Company.
EV/Ton (x) 74 57 53 Management expects to see benets of marke ng synergies out of a wider and
more a rac ve por olio of brands in highly protable regions like UP and MP.
Es mate change
Valua on and view: BCORPs favorable market mix and strong balance sheet
TP change
oer an edge over compe tors. However, the outlook for organic growth
Ra ng change
(u liza on at 75% now) and protability remains clouded by limited expansion,
prolonged mining issue at Chanderia and lingering concerns about the bigger
ownership issue. Valua ons on its inorganic venture would be a key
monitorable although such a move oers growth visibility, it could poten ally
dent balance sheet strength, in our view. The stock trades at 7.7x/5.7x
FY17E/FY18E EV/EBITDA and EV/ton of USD57/53 on FY17E/FY18E. We value
the stock at 8x FY18EV/EBITDA with TP of INR759 (16% upside). Maintain Buy.

Abhishek Ghosh (Abhi s hek.Ghos h@mo l a l os wa l .com); +91 22 3982 5436

Varun Gadia (Va run.Ga di a @mo l a l os wa l .com); +91 22 3982 5446
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Mo lal Oswal research is available on www.mo laloswal.com/Ins tu onal-Equi es, Bloomberg, Thomson Reuters, Factset and S&P Capital.

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Exhibit 1: Firm realiza ons at -1% QoQ but weak Volumes at -10.2% YoY
Realiza on (INR/ton) Volume (m ton)
2.2 2.2
2.1 1.9 2.0 2.0 2.0
1.8 1.9 1.8 1.9 1.8 1.9
1.7 1.8
1.6 1.6 1.6 1.6
1.5
1.4 1.4

Source: Company, MOSL

Exhibit 2: OPM declined QoQ due to nega ve opera ng

leverage and higher P&F costs Exhibit 3: Trend in EBITDA (INR/ton)
EBITDA (INR m) EBITDA Margins (%)
26.7

19.1
17.6
14.9 14.6
12.3 11.4 10.0
12.4 10.0
8.4 8.78.2 7.1 7.6 6.06.65.6
4.2 3.54.0
4.0

Source: Company, MOSL Source: Company, MOSL

Exhibit 4: Trend in revenue mix (INR m)

INR M 2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)
Cement 7,807 8,255 -5.4 9,718 -19.7
Contribu on (%) 88.5 90.2 94.1
Jute 991 859 15.4 579 71.2
Contribu on (%) 11.2 9.4 5.6
Others 28 37 -25.4 35 -20.7
Contribu on (%) 0.3 0.4 0.3
Net sales 8,825 9,150 -3.6 10,331 -14.6
Source: Company, MOSL

Exhibit 5: Trend in PBIT mix (INR m)

2QFY17 2QFY16 YoY (%) 1QFY17 QoQ (%)
Cement 494 146 237.5 1,087 -54.5
Contribu on (%) 82.1 64.4 100.3
Jute 111 83 33.8 49 125.1
Contribu on (%) 18.4 36.3 4.5
Others -3 -2 62.5 -1 85.7
Contribu on (%) -0.4 -0.7 -0.1
Total 602 227 164.7 1,084 -44.5
Source: Company, MOSL

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Exhibit 6: Opera ng at ~80% u liza on

Capacity (mt) Dispatch (mt) U liza on (%)
93 93
91 91 89
87
82
79 79
76

70

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Source: MOSL, Company

Exhibit 7: Trend in Protability (INR) Exhibit 8: Trend in capital eciencies (%)

Cement EBITDA/ton RoE RoCE

60

48

36

24

12
1089 819 1236 696 528 570 292 329 268 514 650
0

Source: MOSL, Company Source: MOSL, Company

Exhibit 10: Balance sheet strength to aid Reliance Cement

Exhibit 9: Market mix (%) acquisi on
Net debt (INR b) CWIP as % CE DER (x)
North South East West Central
15.3 14.6
12.7
9.4 8.6 5.9
37 40 4.3 4.2
-0.2 2.6 3.6
-0.1 0.0
3 -0.3
-0.2
25 19 -0.2
-3.9 -6.0 -7.7 -3.6 -3.2 -0.3
-5.2 -0.4
-0.5 -7.0 -5.4 -5.8
40 38 -0.4 -0.4
-0.4 -13.7 -15.9

Capacity mix Volume mix

Source: MOSL, Company Source: MOSL, Company

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Financials and Valua ons

Income Statement (INR Million)
Y/E March 2012 2013 2014 2015 2016 2017E 2018E
Net Sales 22,469 25,638 29,705 31,523 32,252 40,191 45,282
Change (%) 5.8 14.1 15.9 6.1 2.3 24.6 12.7
EBITDA 3,124 3,536 2,107 2,440 2,355 4,431 5,612
Margin (%) 13.9 13.8 7.1 7.7 7.3 11.0 12.4
Deprecia on 800 1,044 1,326 1,535 1,490 1,551 1,596
EBIT 2,324 2,493 781 905 865 2,880 4,017
Int. and Finance Charges 525 649 856 784 816 1,313 1,636
Other Income - Rec. 1,662 1,663 1,598 2,007 1,820 2,052 2,546
PBT 3,461 3,507 1,523 2,129 1,869 3,619 4,927
Change (%) -20.9 1.3 -56.6 39.8 -12.2 93.7 36.1
Tax 1,068 809 225 374 295 543 985
Tax Rate (%) 30.9 23.1 14.8 17.6 15.8 15.0 20.0
PAT 2,392 2,698 1,298 1,754 1,574 3,076 3,942
Extra Ordinary Expenses 0 0 0 0 0 0 0
PAT Adj for EO Items 2,392 2,698 1,298 1,754 1,574 3,076 3,942
Change (%) -25.2 12.8 -51.9 35.2 -10.3 95.5 28.1
Margin (%) 10.6 10.5 4.4 5.6 4.9 7.7 8.7

Balance Sheet (INR Million)

Y/E March 2012 2013 2014 2015 2016 2017E 2018E
Equity Share Capital 770 770 770 770 770 770 770
Reserves 21,664 23,731 24,491 25,471 26,322 33,826 35,873
Net Worth 22,434 24,501 25,261 26,241 27,092 34,596 36,643
Loans 11,243 12,261 11,302 12,426 12,377 20,449 20,449
Deferred Liabili es 1533 2,117 2,342 2,429 2,726 2,726 2,726
Capital Employed 35,210 38,878 38,905 41,097 42,195 57,772 59,818

Gross Block 21968 26,803 29,866 31,288 34,707 34,207 36,707

Less: Accum. Deprn. 8486 9,475 10,801 12,335 13,825 15,376 16,972
Net Fixed Assets 13,482 17,328 18,614 18,953 20,882 18,831 19,736
Capital WIP 5139 2,286 1,000 1,500 0 2,500 2,500
Investments 10448 12,707 13,340 13,179 14,574 30,574 30,574

Curr. Assets 11,526 12,934 15,266 16,281 16,085 19,838 21,734

Inventory 4171 5,701 5,151 5,521 5,671 7,857 7,698
Account Receivables 372 750 747 881 942 1,155 1,132
Cash and Bank Balance 4386 2,786 5,011 4,668 3,622 3,623 5,805
Others 2597 3,696 4,357 5,211 5,849 7,203 7,100

Curr. Liability & Prov. 5,386 6,377 9,315 8,816 9,346 13,972 14,726
Account Payables 4,744 5,427 8,357 7,767 8,273 12,941 13,585
Provisions 642 950 958 1,049 1,073 1,031 1,141
Net Current Assets 6,140 6,557 5,951 7,465 6,739 5,866 7,008

Misc Expenditure 0 0 0 0 0 0 0
Appl. of Funds 35,210 38,878 38,905 41,097 42,195 57,772 59,818
E: MOSL Es mates

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Financials and Valua ons

Ra os
Y/E March 2012 2013 2014 2015 2016 2017E 2018E
Basic (INR)
EPS 31.1 35.0 16.9 22.8 20.4 39.9 51.2
Cash EPS 41.5 48.6 34.1 42.7 39.8 60.1 71.9
BV/Share 291.3 318.2 328.0 340.8 351.8 449.2 475.8
DPS 6.0 7.5 6.0 9.0 10.0 10.0 10.0
Payout (%) 22.6 24.9 55.5 45.9 56.9 29.1 22.7
Valua on (x)
P/E 28.8 32.1 16.4 12.8
Cash P/E 15.3 16.5 10.9 9.1
P/BV 1.9 1.9 1.5 1.4
EV/Sales 1.4 1.4 0.9 0.7
EV/EBITDA 17.8 18.9 7.7 5.7
EV/Ton - Cap (USD) 69 70 54 50
Dividend Yield (%) 1.4 1.5 1.5 1.5
Return Ra os (%)
RoE 11.1 11.5 5.2 6.8 5.9 10.0 11.1
RoCE 8.2 8.6 5.2 6.0 5.4 8.4 8.9
RoIC 12.0 10.6 3.3 3.6 3.2 10.9 15.3
Working Capital Ra os
Inventory (Days) 68 81 63 64 64 71 62
Debtor (Days) 6 11 9 10 11 10 9
Wkg. Capital Turnover (Days) 0.6 0.7 0.8 0.8 0.8 0.7 0.8
Leverage Ra o
Current ra o 2.1 2.0 1.6 1.8 1.7 1.4 1.5
Debt/Equity (x) 0.5 0.5 0.4 0.5 0.5 0.6 0.6

Cash Flow Statement (INR Million)

Y/E March 2012 2013 2014 2015 2016 2017E 2018E
Op.Prot/(Loss) before Tax 6,223 7,450 6,722 7,262 7,193 10,460 5,612
Interest/Dividends Recd. 1,662 1,663 1,598 2,007 1,331 1,346 1,546
Direct Taxes Paid -1,068 -809 -225 -374 -295 -543 -985
(Inc)/Dec in WC 62 -2,016 3,507 -2,222 -319 873 1,040
CF from Opera ons 6,878 6,288 11,602 6,674 7,909 12,136 7,212
CF from Oper. incl EO Items 6,878 6,288 11,602 6,674 7,909 12,136 7,212

(inc)/dec in FA -4,778 -2,036 -1,777 -1,922 -1,919 -2,000 -2,500

Free Cash Flow 2,100 4,252 9,825 4,752 5,990 10,136 4,712
(Pur)/Sale of Investments 1,244 -2,259 -633 161 -1,395 -16,000 0
CF from Investments -3,534 -4,296 -2,410 -1,761 -3,314 -18,000 -2,500

Issue of Shares -3,096 -3,874 -4,432 -4,791 -4,177 0 0

(Inc)/Dec in Debt 1,085 1,017 -959 1,124 -49 8,072 0
Interest Paid -525 -649 -856 -784 -816 -1,313 -1,636
Dividend Paid -541 -671 -721 -805 -895 -895 -895
CF from Fin. Ac vity -3,076 -4,177 -6,968 -5,256 -5,937 5,865 -2,531

Inc/Dec of Cash 268 -2,184 2,224 -343 -1,342 1 2,182

Add: Beginning Balance 3,711 4,386 2,786 5,011 4,668 3,622 3,623
Closing Balance 4,385 2,786 5,011 4,667 3,326 3,623 5,805
E: MOSL Es mates

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Corporate prole
Exhibit 1: Sensex rebased
Company descrip on
Birla Corpora on (BCORP), established in 1919, is
part of the MP Birla group. It manufactures cement,
jute products, synthe c viscose and co on yarn.
Cement cons tutes about 85% of its revenue. It has
cement plants in Rajasthan, Madhya Pradesh, U ar
Pradesh and West Bengal.

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pa ern (%) Exhibit 3: Top holders

Sep-16 Jun-16 Sep-15 Holder Name % Holding

Promoter 62.9 62.9 62.9 Life Insurance Corpora on Of India 4.0

DII 17.1 18.7 17.5 Icici Pruden al Value Discovery Fund 3.8
FII 2.5 1.2 1.3 Reliance Capital Trustee Company Limited
A/C Reliance Growth Fund 2.8
Others 17.5 17.2 18.3
Merlin Securi es Pvt Ltd 2.8
Note: FII Includes depository receipts Source: Capitaline
Reliance Capital Trustee Co Ltd-A/C Reliance
Mide 1.7
Life Insurance Corpora on Of India 4.0
Source: Capitaline

Exhibit 4: Top management Exhibit 5: Directors

Name Designa on Name Name
Harsh V Lodha Chairman Anand Bordia* B B Tandon*
B R Nahar Managing Director D N Ghosh* Deepak Nayyar*
Girish Sharma Company Secretary Vikram Swarup* Shailaja Chandra*
Pracheta Majumdar

Source: Capitaline *Independent

Exhibit 6: Auditors Exhibit 7: MOSL forecast v/s consensus

Name Type EPS MOSL Consensus Varia on
(INR) forecast forecast (%)
H P Khandelwal & Co Statutory
FY17 39.9 41.5 -3.9
FY18 51.2 54.7 -6.5

Source: Bloomberg

Source: Capitaline

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NOTES

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subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Varun Kumar
[email protected]
Contact : (+65) 68189232
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22 November 2016 Phone: +91 22 3982 5500 E-mail: reports@mo laloswal.com 8

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