RESULTS REVIEW 2QFY18 13 NOV 2017

Birla Corp
BUY
INDUSTRY CEMENT Off-season, steady delivery
CMP (as on 10 Nov 17) Rs 1,215
Birla Corps (BCORP) numbers beat estimates (Rs Other Key Highlights
Target Price Rs 1,455 638/t, Est Rs 484, 14.2/(10.9)% YoY/QoQ). The beat
Nifty 10,322 was primarily on account of lower other operating Like for like, volume growth stood at 10%, a good
outcome given sand shortage in two key markets.
Sensex 33,315 expenses (Rs 1.0bn vs Rs 1.5bn run-rate in previous 2
Pricing remained under pressure for most markets that
KEY STOCK DATA
quarters). Numbers are not comparable YoY, due to
BCorp operates in. BCorp also faced issues with pet-
Acquired ops being included from August 22, 2016.
Bloomberg BCORP IN coke usage in both its MP plants due to NGT order,
The 2QFY18 delivery was in spite of the severe sand which has since been clarified. Chanderia ops continue
No. of Shares (mn) 77 shortages in UP and Bihar. to be dependent on purchased limestone, driving
MCap (Rs bn) / ($ mn) 94/1,436 Birla Corp remains relatively undervalued lower profitability in the standalone ops. Acquired ops
6m avg traded value (Rs mn) 97 (11.4/10.0x EV/EBITDA for FY19/20), compared to delivered an EBITDA of Rs1.01bn.
STOCK PERFORMANCE (%) large cement companies which trade at 15/13x. It is Near-term outlook: Strong reversal in demand is
52 Week high / low Rs 1,229 / 608
the best play on Central India, which is not expected expected in the states impacted by sand shortage,
to see any significant capacity additions in the near once the issues around sand supply are resolved.
3M 6M 12M
future, driving high utilizations. Higher leverage Volumes should also rebound from the seasonally
Absolute (%) 28.0 56.8 60.2 (FY18E Net Debt/EBITDA: 4.6x, Net D/E: 1.2x) vs weaker numbers delivered in 2Q, and we expect that
Relative (%) 22.3 46.6 39.1 peers (mostly debt free) and lower profitability in the the price increases in 2HFY18 should offset the cost
standalone ops, may weigh on further rerating. We pressures from rising petcoke. We have revised our
SHAREHOLDING PATTERN (%)
maintain BUY with and upgrade our TP (Rs 1,455, FY18 estimates marginally downwards to account for
Promoters 62.90 somewhat lower pricing YTD.
12.0x Sep-19 EV/EBITDA US$138/t).
FIs & Local MFs 15.52
FPIs 3.04 Financial Summary(Consolidated)
Public & Others 18.54 (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) FY16 FY17 FY18E FY19E FY20E
Net Sales 12,355 9,445 30.8 14,588 (15.3) 32,682 43,477 55,877 60,200 63,483
Source : BSE
EBITDA 1,768 1,294 36.6 2,404 (26.5) 3,029 6,451 9,327 11,350 12,273
Ankur Kulshrestha, CFA PAT 15 654 (97.8) 307 -95 1,678 2,195 2,419 3,932 4,827
ankur.kulshrestha@hdfcsec.com Diluted EPS (Rs) 0.2 8.5 (97.8) 4.0 -95 21.8 28.5 31.4 51.1 62.7
+91-22-6171 7346 P/E (x) 55.8 42.6 38.7 23.8 19.4
Meera Midha EV / EBITDA (x) 29.4 21.1 14.4 11.4 10.0
meera.midha@hdfcsec.com RoE (%) 5.8 7.0 7.1 10.7 11.9
+91-22-6171 7334 Source: Company, HDFC sec Inst Research, YoY numbers not comparable given Acquired Ops consolidated from August 22, 2016
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Sharply lower other operating Quarterly Financials Snapshot (Consolidated)

expenses drove the beat (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
(EBITDA: Rs 1.77bn, Net Sales 12,355 9,445 30.8 14,588 (15.3)
36.6/(26.5)% YoY/QoQ, Est Rs Cement 11,597 8,418 37.8 13,834 (16.2)
1.4 bn) Jute & Other 743 999 (25.6) 733 1.4
Power & Fuel 3,062 2,167 3,542
Freight Expenses 3,045 1,948 3,454
RM Costs 1,725 1,520 1,971
Employee costs 908 732 846
(Increase)/Decrease in stock -131 -87 -90
Other Operating Expenses 1,977 1,871 5.7 2,461 (19.7)
EBITDA 1,768 1,294 36.6 2,404 (26.5)
Other operating income 0 0 0
Other Income/(expense) 119 450 (73.6) 161 (25.9)
Interest Cost 1,053 527 937
Depreciation 831 569 832
E/O 0 0 125
PBT 3 648 (99.6) 671 (99.6)
Tax -12 -6 239
RPAT 15 654 (97.8) 432 (96.6)
E/o (adj for tax) 0 0 -125
APAT 15 654 (97.8) 307 (95.2)
Source: Company, HDFC sec Inst Research

Per Tonne Analysis

Per tonne data 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Strong surge in freight costs
Volumes (cement & clinker, mT) 2.65 2.08 27.5 3.28 (19.2)
offset some of the realisation
Blended realisations (Rs/T) 4,376 4,053 8.0 4,219 3.7
gains. The increase in P&F
P&F costs (Rs/T) 1,156 1,042 10.9 1,080 7.0
and RM costs is mostly on
Freight costs (Rs/T) 1,149 937 22.7 1,053 9.1
expected lines
RM costs (Rs/T) 651 731 (11.0) 599 8.8
Other costs (Rs/T) 376 515 (26.8) 449 (16.2)
Cement EBITDA/T (Rs/t) 638 559 14.2 716 (11.0)
Cement costs/t 3,739 3,494 7.0 3,502 6.7
Source: Company, HDFC sec Inst Research
Cement Realisations and EBITDA/t calculated by adjusting for Jute reported PBIT and pro-rata FY17 segment depreciation

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Quarterly Financials Snapshot (Standalone)

(Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
Net Sales 7,966 7,692 3.6 9,662 (17.6)
Lower other operating Cement 7,208 6,673 8.0 8,908 (19.1)
expenses led to a strong Jute & Other 758 1,018 (25.6) 754 0.5
outcome in standalone Power & Fuel 2,092 1,713 2,266
operations. Freight Expenses 2,022 1,657 2,380
RM Costs 1,355 1,412 1,548
Employee costs 645 658 655
(Increase)/Decrease in stock -162 -81 133
Other Operating Expenses 1,252 1,566 1,639
EBITDA 762 766 (0.6) 1,040 (26.7)
Other operating income 0 43 0
Other Income/(expense) 81 443 (81.8) 190 (57.4)
Interest Cost 446 303 398
Depreciation 360 374 358
E/O 0 0 -125
PBT 37 574 (93.6) 349 (89.5)
Tax (8) (10) 71
RPAT 44 584 (92.5) 278 (84.2)
E/o (adj for tax) 0 0 125
APAT 44 584 (92.5) 403 (89.1)
Source: Company, HDFC sec Inst Research

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

The acquired operations Quarterly Financials Snapshot (Acquired ops)

continue to deliver good (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%)
numbers Net Sales 4,389 1,753 150.4 4,926 (10.9)
Power & Fuel 971 454 1,276
Freight Expenses 1,023 291 1,074
RM Costs 371 108 422
Employee costs 262 74 191
(Increase)/Decrease in stock 31 -6 -224
Other Operating Expenses 724 305 822
EBITDA 1,007 528 90.8 1,365 (26.2)
Other operating income 0 -43 0
Other Income/(expense) 38 7 416.2 -29 (230.8)
Interest Cost 607 224 539
Depreciation 471 195 474
PBT (34) 74 N/M 323 N/M
Tax -4 4 169
APAT (29) 70 N/M ` 154 N/M
Source: Company, HDFC sec Inst Research
Note: 2QFY17 represents a period between August 22, 2016 to September 30, 2016

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Peer Valuations
MCap CMP TP EV/EBITDA (x) P/E (x) EV/T (US$)
Company Rating
(Rs bn) (Rs) (Rs) FY19E FY20E FY19E FY20E FY19E FY20E
UltraTech Cement 1,222.4 4,451 NEU 3,380 16.9 13.6 45.8 30.7 237 228
Shree Cement 629.0 18,055 NEU 14,565 14.4 11.9 22.7 20.1 237 224
Ambuja Cement1 536.3 270 SELL 200 14.5 12.1 23.2 18.7 174 168
ACC1 330.1 1,754 SELL 1,300 12.9 11.1 23.7 19.5 145 144
Ramco Cements 166.1 698 NEU 456 12.8 13.0 19.9 20.7 213 212
Birla Corp 93.5 1,215 BUY 1,455 11.4 10.0 23.8 19.4 135 129
Orient Cement 34.1 167 NEU 165 10.5 8.6 19.5 13.3 101 94
Sanghi Industries 25.8 117 NEU 83 6.6 5.4 10.7 9.3 111 96
Deccan Cements 8.0 574 BUY 1,468 4.6 5.1 8.8 9.8 50 49
Note: Prices as of November 10, 2017, close. US$: INR = 64.67
1
December YE

Key Assumptions
Year Ending March FY16 FY17 FY18E FY19E FY20E
Cement volumes (mn t) 8.09 10.08 12.54 12.69 12.77
Standalone 7.87 8.14 8.09 8.02
Reliance 2.25 4.40 4.60 4.75
Realizations (Rs/t) 3,638 3,978 4,199 4,491 4,719
P&F cost/t (Rs/t) 958 961 984 1,026 1,064
Raw material cost/t (Rs/t) 764 659 618 637 669
Freight cost/t (Rs/t) 969 980 999 1,029 1,061
EBITDA/t 319 587 718 869 935
Costs/t 3,319 3,391 3,481 3,622 3,783
Source: Company, HDFC sec Inst Research
Note: Acq Ops included from FY17. Standalone nos till FY16. P&F, Raw Materials and Freight costs only reflective of standalone ops.

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

We have revised our FY18 Changes to estimates

estimates marginally Old New %Change
downwards to account for FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
somewhat lower pricing YTD. Volumes (mT) 11.94 12.53 12.67 12.5 12.7 12.8 5.0 1.2 0.8
Realisations (Rs/T) 4,347 4,533 4,727 4,199 4,491 4,719 (3.4) (0.9) (0.2)
Revenues (Rs mn) 55,128 60,023 63,118 55,877 60,200 63,483 1.4 0.3 0.6
EBITDA (Rs mn) 9,980 11,574 12,195 9,327 11,350 12,273 (6.5) (1.9) 0.6
PAT (Rs mn) 2,954 4,144 4,809 2,419 3,932 4,827 (18.1) (5.1) 0.4
Source: HDFC sec Inst Research

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Consol operations delivered Like for like volume growth at 10% Blended realisations trended higher
an EBITDA/t of Rs 638. Sales volume (mT) YoY(%) Cement realisations (Rs/T) YoY (%)
mnT Rs /T %
3.5 60.0 4,500 25.0
3.0 50.0 20.0

2.5 40.0 4,000 15.0

30.0 10.0
2.0
20.0 3,500 5.0
1.5
10.0 -
1.0 - 3,000 (5.0)
0.5 (10.0) (10.0)
0.0 (20.0) 2,500 (15.0)

2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Chart reflects consolidated numbers from 1QFY18 onwards Chart reflects consolidated numbers from 1QFY18 onwards

EBITDA/t at Rs 638/t Expansion in op costs driven by higher freight

EBITDA/T (Rs) YoY (%) P&F Costs/T RM cost/T Freight cost/T
Rs /T % 3,500
900 250.0
800 200.0 3,000
700
150.0 2,500
600
500 100.0 2,000
400 50.0 1,500
300
- 1,000
200
100 (50.0) 500
0 (100.0) 0
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18

2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY18
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Chart reflects consolidated numbers from 1QFY18 onwards Chart reflects consolidated numbers from 1QFY18 onwards

Page | 7
 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Income Statement (Consolidated) Balance Sheet

Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E
Net Revenues 32,682 43,477 55,877 60,200 63,483 SOURCES OF FUNDS
Growth % 3.7 33.0 28.5 7.7 5.5 Share Capital 770 770 770 770 770
Material Expenses 19,601 23,890 26,574 27,852 29,173 Reserves 28,483 32,280 34,143 37,519 41,789
Employee Expenses 2,437 3,063 3,633 3,961 4,319 Total Shareholders Funds 29,253 33,050 34,913 38,289 42,559
SG&A Expenses 7,737 10,235 13,284 13,796 14,300 Long Term Debt 7,897 40,491 40,491 40,491 40,491
Operating profits 2,861 6,229 9,312 11,334 12,256 Short Term Debt 5,162 2,837 2,623 2,623 2,623
Operating Profit Margin (%) 8.8 14.3 16.7 18.8 19.3 Total Debt 13,059 43,328 43,114 43,114 43,114
Other operating income 168 223 14 16 17 Deferred Taxes 1,830 5,645 5,645 5,645 5,645
EBITDA 3,029 6,451 9,327 11,350 12,273 Long Term Provisions & Others 3,883 4,581 4,581 4,581 4,581
EBITDA % 9.3 14.8 16.7 18.9 19.3 TOTAL SOURCES OF FUNDS 48,024 86,604 88,253 91,629 95,899
EBITDA Growth % 0.4 113.0 44.6 21.7 8.1 APPLICATION OF FUNDS
Depreciation 1,488 2,555 3,046 3,091 3,137 Net Block 20,408 54,464 52,416 50,325 48,189
EBIT 1,541 3,896 6,281 8,259 9,137 CWIP 634 8,053 8,303 8,553 8,804
Other Income (including EO Goodwill 2 9,356 9,356 9,356 9,356
1,291 1,175 800 713 1,052
items) Investments 1,046 2,198 2,198 2,198 2,198
Interest 823 2,768 4,057 4,057 4,155
LT Loans and Advances 1,275 1,793 1,793 1,793 1,793
PBT 2,010 2,303 3,024 4,915 6,034
Total Non-current Assets 23,363 75,864 74,066 72,225 70,340
Tax 332 108 605 983 1,207
Inventories 5,674 6,302 7,549 8,210 8,213
RPAT 1,678 2,195 2,419 3,932 4,827
Debtors 942 1,325 2,196 1,598 2,403
EO (Loss) / Profit (Net Of Tax) - - - - -
Other Current Assets 2,704 6,797 6,797 6,797 6,797
APAT 1,678 2,195 2,419 3,932 4,827
Cash & Equivalents 19,530 6,614 8,139 13,420 18,973
APAT Growth (%) (4.4) 30.8 10.2 62.5 22.8
Total Current Assets 28,850 21,037 24,680 30,024 36,385
Adjusted EPS (Rs.) 21.8 28.5 31.4 51.1 62.7
Creditors 1,627 3,679 3,876 4,003 4,208
EPS Growth (%) (8.5) 30.8 10.2 62.5 22.8 Other Current Liabilities
Source: Company, HDFC sec Inst Research 2,562 6,619 6,619 6,619 6,619
&Provns
Note: RCCPL included from FY17. Standalone nos till FY16
Total Current Liabilities 4,189 10,298 10,496 10,622 10,827
Net Current Assets 24,661 10,740 14,185 19,402 25,557
TOTAL APPLICATION OF FUNDS 48,024 86,604 88,253 91,629 95,899
Source: Company, HDFC sec Inst Research

Page | 8
 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Cash Flow Key Ratios

Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E FY16 FY17 FY18E FY19E FY20E
Reported PBT 2,010 2,303 3,024 4,915 6,034 PROFITABILITY (%)
Non-operating & EO items (956) 4,370 (800) (713) (1,052) EBITDA Margin 9.3 14.8 16.7 18.9 19.3
Interest expenses 823 2,768 4,057 4,057 4,155 APAT Margin 5.1 5.0 4.3 6.5 7.6
Depreciation 1,473 2,405 3,046 3,091 3,137 RoE 5.8 7.0 7.1 10.7 11.9
Working Capital Change (163) 3,193 (1,920) 64 (603) Core RoCE 6.2 8.6 7.5 10.0 11.3
Tax paid (332) (108) (605) (983) (1,207) RoCE 6.9 8.8 7.6 9.3 10.1
OPERATING CASH FLOW ( a ) 2,854 14,931 6,802 10,431 10,464 EFFICIENCY
Capex (1,909) (53,234) (1,250) (1,250) (1,252) Tax Rate (%) 16.5 4.7 20.0 20.0 20.0
Free cash flow (FCF) 945 (38,303) 5,552 9,181 9,212 Asset Turnover (x) 1.0 0.7 0.6 0.7 0.7
Investments 175 (1,152) 0 0 0 Inventory (days) 63 50 45 48 47
Non-operating Income 956 (4,370) 800 713 1,052 Debtors (days) 11 11 12 12 12
INVESTING CASH FLOW ( b ) (778) (58,756) (450) (537) (200) Payables (days) 18 22 25 24 24
Debt Issuance/(Repaid) (346) 34,084 (214) 0 0 Cash Conversion Cycle (days) 55 39 32 35 35
Interest expenses (823) (2,768) (4,057) (4,057) (4,155) Debt/EBITDA (x) 4.6 4.5 4.6 3.8 3.5
FCFE 733 (11,357) 2,081 5,837 6,109 Net D/E 0.45 1.31 1.23 1.13 1.01
Share Capital Issuance 0 0 0 0 (770) Interest Coverage 3.5 2.3 2.3 2.8 2.9
Dividend (556) (556) (556) (556) (556) PER SHARE DATA
FINANCING CASH FLOW ( c ) (1,725) 30,760 (4,827) (4,613) (4,712) EPS (Rs/sh) 21.8 28.5 31.4 51.1 62.7
NET CASH FLOW (a+b+c) 351 (13,065) 1,525 5,281 5,553 CEPS (Rs/sh) 40.9 59.7 71.0 91.2 103.4
EO Items/Others (31) (150) DPS (Rs/sh) 6.0 6.0 6.0 6.0 6.0
Closing Cash & Equivalents 19,530 6,614 8,139 13,420 18,973 BV (Rs/sh) 379.9 429.2 453.4 497.2 552.7
Source: Company, HDFC sec Inst Research VALUATION
P/E 55.8 42.6 38.7 23.8 19.4
P/BV 3.2 2.8 2.7 2.4 2.2
EV/EBITDA 29.4 21.1 14.4 11.4 10.0
OCF/EV (%) 3.3% 11.5% 5.3% 8.5% 8.9%
FCF/EV (%) 1.1% (29.4%) 4.3% 7.4% 7.8%
FCFE/Market Cap (%) 0.8% (12.1%) 2.2% 6.2% 6.5%
Dividend Yield (%) 0.5 0.5 0.5 0.5 0.5
Source: Company, HDFC sec Inst Research

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

RECOMMENDATION HISTORY
Date CMP Reco Target
Birla Corp TP 9-Feb-17 745 NEU 678
1,500 29-May-17 769 BUY 1,005
1,400
13-Aug-17 929 BUY 1,160
1,300
6-Oct-17 920 BUY 1,160
1,200
1,100
13-Nov-17 1,215 BUY 1,455
1,000
900
800
700
600 Rating Definitions
500
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Apr-17
Feb-17

Sep-17
Jun-17

Jul-17
Mar-17
Dec-16

Oct-17
Aug-17
Nov-16

Jan-17

Nov-17
May-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 10
 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

Disclosure:
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C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193

Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

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 BIRLA CORPORATION : RESULTS REVIEW 2QFY18

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
SenapatiBapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330www.hdfcsec.com

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