Birla Corporation - Moneycontrol.com

An

nu

al

Re

po

rt A

na

lysi

s FY

19

Growing Stronger Birla Corporation in its FY20 annual report, highlights that true success rests on heart and strength, a belief instilled in the promoters by the vision of the founders. BCORP has 10 plants at seven locations, with a total capacity of 15.5mtpa. BCORP’s capacity is primarily based in the Central region (8.5mtpa – 55%) and the Northern region (4mtpa – 26%) whereas balance 16% (2.4mtpa) and 4% (0.6mtpa) of installed capacity is in the Eastern and Western regions, respectively. We like BCORP due to its focus on trade segment (81% share), increasing share of premium products (up 400bps to 41% out of trade segment in FY20), higher share (up 300bps to 92% in FY20) of high margin blended cement and sizable presence in relatively better regions of Central, North and expansion in West.

MDA Overview The demand for cement in India witnessed a robust growth of around 13% in FY19. At least 338 mt of cement was consumed during FY19, up from 299 mt in FY18. At the beginning of 2019-2020, it was expected that demand for cement would continue to grow at a CAGR of at least 4% over the next few years, balancing out capacity addition. But fiscal FY20 failed to live up to its expectations. India’s cement consumption in FY20 is estimated to have contracted by at least 2% from the previous year to 331 mt. At the same time, India continued to add production capacity, which, coupled with weak demand, impacted capacity utilisation in a big way. It was estimated at the beginning of FY20 that India would expand its cement production capacity at an annual CAGR of 3.8% to reach 410 mt by fiscal FY24. Plans for capacity addition will likely be altered due to the COVID-19 pandemic and its impact on India’s cement demand.

Capacity addition to support future growth BCORP is adding 5.1mtpa capacity which will increase its capacity from 15.5mtpa to 20.6mtpa. The expansion plan includes 2.64mtpa clinker capacity and 3.9mtpa cement capacity as part of the greenfield integrated plant in Mukutban (Maharashtra) and 3rd grinding unit at Kundanganj (U.P.) with a capacity of 1.2mtpa. 3.9mtpa Mukutban expansion includes railway siding (to be operational by Q2FY22E), 40MW captive thermal power plant and 9MW WHRS. BCORP spent Rs10.85 bn out of Rs.24.5 bn capex for 3.9mtpa (Mukutban) whereas it decided to hold 1.2mtpa (Kundanganj) GU with a capex of Rs2.50bn till normalization of business environment (affected due to COVID-19).

Marketing Initiatives For FY20, premium brands accounted for 41% of volumes within the trade segment, up 8% YoY. Continuing to invest in its Cement-Se-Ghar-Tak strategy of supporting and earning the trust of individual home-builders, the company has created service teams to provide on-ground support to consumers.

Financial Snapshot Revenue up 5.6% YoY to Rs69.2 bn in FY20 led by 6.4% YoY growth in realization to Rs4,846/ tn which was marginally offset by volume de-growth of 0.5% YoY to 13.6 mt in FY20. Cement EBITDA/tn increased by 42.1% YoY to Rs967/ tn in FY20 led by 6.4% YoY growth in realization to Rs4,846/ tn which was marginally offset by rise in cost by 0.1% YoY to Rs3,881/ tn. APAT grew 107.1% YoY to Rs4.9 bn in FY20.

CMP Rs 599

Target / Upside Rs 650 / 8%

BSE Sensex 37,660

NSE Nifty 11,074

Scrip Details

Equity / FV Rs 770mn / Rs 5

Market Cap Rs 46bn

US$ 617mn

52-week High/Low Rs 656/Rs 382

Avg. Volume (no) 5,04,685

NSE Symbol BIRLACORPN

Bloomberg Code BCORP IN

Shareholding Pattern Jun'20(%)

Promoters 62.9

MF/Banks/FIs 14.6

FIIs 3.6

Public / Others 18.9

Birla Corp. Relative to Sensex

VP Research: Shravan Shah Tel: +91 22 40969749

E-mail: [email protected]

Associate: Maulik Shah Tel: +91 22 40969775

E-mail: [email protected]

90

110

130

150

170

190M

ay-

20

Jun-2

0

Jul-20

BCORP SENSEX

Birla Corporation

Buy

August 03, 2020

August 03, 2020 2

Annual Report Macro View

Key Management

Shri Bachh Raj Nahar (DIN: 00049895) ceased to be the Managing Director of the Company w.e.f. 3rd August, 2019 in view of completion of his tenure. He also ceased to be the Director of the Company w.e.f. 13th August, 2019 due to retirement. Shri Pracheta Majumdar (DIN: 00179118) was appointed as the Chief Executive Officer of the Company w.e.f. 2nd August, 2019. Consequently, Shri Majumdar has been re-designated as Wholetime Director & Chief Executive Officer of the Company w.e.f. 2nd August, 2019.

Board of Directors No Change

Credit Rating

FY2019 FY2020

Short Term Debt & CP CRISIL A1+ CRISIL A1+

Long Term NCD CRISIL AA Negative CRISIL AA Stable

Long Term NCD ICRA AA Negative ICRA AA Stable

Long Term facilities CARE AA Stable CARE AA Stable

Short Term facilities CARE A1+ Stable CARE A1+ Stable

NCD CARE AA Stable CARE AA Stable

Auditors V. Sankar Aiyar & Co. continue to be the Auditors.

Pledged Shares % of shares pledged:

FY2019 FY2020

- -

Macro-economic Factors

India’s estimates for growth of India’s Gross Domestic Product (GDP) at 6.8% at the beginning of FY20 were revised downward at least twice during the year by multiple agencies to 5% and to 4.1% eventually even before the country went into a lockdown in the wake of the COVID-19 pandemic towards the end of Mar’20.

Key Holders

Shareholding Pattern Mar’19 Jun’20

A. Promoters 62.90 62.90

B. Public Shareholding

1. Institutions:

a. Mutual Funds 11.52 10.89

b. Banks/FI 0.14 0.03

c. Central Govt. - -

d. State Govt.(s) - -

e. Venture Capital Funds - -

f. Insurance Companies 3.66 3.69

g. FII(s) / FPI(s) 4.17 3.62

h. Foreign Venture Capital Funds - -

i. Others (Alternate Investment Funds) - -

j. Qualified Institutional Buyer - -

2. Non-Institutions:

a. Bodies Corp. 3.75 3.86

b. Individuals 12.09 13.23

c. Others 1.77 1.78

C. Shares held by Custodian for GDRs & ADRs - -

Total 100.00 100.00

Source: Company, DART

August 03, 2020 3

Remuneration of Key managerial personnel

Name of Director Designation Remuneration (Rs mn)

FY18 FY19 FY20

Bachh Raj Nahar MD (ceased wef 3 Aug’19) 39.4 41.9 36.2 Pracheta Majumdar Whole-time Director and CEO 12.2 17.0 12.5 Aditya Saraogi CFO 12.5 11.9 14.5 Girish Sharma CS 5.4 5.8 6.5

Source: DART, Company

Board and Committee Composition

Name of Directors Audit Nomination & Remuneration

Stakeholders Relationship

CSR Risk

Vikram Swarup • •

Bachh Raj Nahar •

Pracheta Majumdar •

Harsh Lodha •

Anand Bordia • •

Brij Behari Tandon • • •

Dhruba Narayan Ghosh •

Deepak Nayyar • •

Shailaja Chandra •

Dilip Ganesh Karnik •

Sandip Ranjan Ghose •

Aditya Saraogi • Total No. of Members 4 5 4 5 4

Source: Company, DART, Chairperson, • Member

August 03, 2020 4

Key Takeaways from the MD&A

Cement Industry

Demand for cement in India witnessed a robust growth of around 13% in FY19. At least 338 mt of cement was consumed during FY19, up from 299 mt in FY18. At the beginning of 2019-2020, it was expected that demand for cement would continue to grow at a CAGR of at least 4% over the next few years, balancing out capacity addition. But fiscal FY20 failed to live up to its expectations.

India’s cement consumption in fiscal FY20 is estimated to have contracted by at least 2% from the previous year to 331 mt. At the same time, India continued to add production capacity, which, coupled with weak demand, impacted capacity utilisation in a big way.

It was estimated at the beginning of fiscal FY20 that India would expand its cement production capacity at an annual CAGR of 3.8% to reach 410 mt by fiscal FY24. Plans for capacity addition will likely be altered due to the COVID-19 pandemic and its impact on India’s cement demand.

The year started with unavoidable disruptions in the economy due to the General Election. Cement demand was impacted as construction activities slowed down. Most cement companies reported low capacity utilisation in the first few quarters. But even with the country voting for a stable government at the Centre, things did not look up as the economy went into an unanticipated tailspin.

Cement plants update

Chanderia, Rajasthan - The plant reached its highest ever production of the premium brand Perfect Plus cement. It also achieved the highest ever clinker TPD from CCW-2 kiln after the project completion of the first expansion phase.

Satna, MP - The plant attained its highest ever clinker production and daily production from the BVC kiln. To further integrate the automated weighbridge with SAP for all inward and outward movement of material, an Automated Truck Parking with Plant Entry & Weighbridge System was installed at the plant.

Maihar, MP - A 12.25MW Waste Heat Recovery System and 12MW solar plant were commissioned at the plant.

Kundanganj, UP - The Kundanganj plant broke all its previous records with the highest ever cement production and dispatch in a year. It also successfully set up a railway siding and automated loading facility for finished products.

Durgapur, WB - With the highest ever slag % utilisation in DCW PSC (yearly average) and fly ash % utilisation in DHTC PPC (yearly average), the Durgapur plant reached its highest ever cement production and dispatch in a year.

Raebareli, UP - The Raebareli plant reached its highest ever fly ash consumption in a year at its RCW and RHTC units. Better control of processes led to water consumption reaching an all-time low at the plant. The water saved was used for industrial cooling and domestic purposes.

Mukutban, Maharashtra - The Mukutban project has seen rapid progress in the past year with 64% completion achieved.

August 03, 2020 5

Capex

Birla Corporation Projects completed - Installation of 3 MW Solar Power Plant at Chanderia unit and 1 MW Solar Power Plant at Satna unit. Projects under implementation - Expansion project of New Chanderia Cement Works (NCCW) plant at Chanderia to increase capacity clinker production capacity from 3600 TPD to 5500 TPD.

RCCPL Pvt Ltd. Projects completed - Commissioned 12.25 MW Waste Heat Recovery System at Maihar unit. Commissioned 7.7 MW Captive Solar Power Plant at Maihar unit. Projects under implementation – 2nd phase expansion of existing capacity of grinding cement plant at Kundanganj unit by installing a 3rd line with a capacity of 1.2 MTPA with cement mill, packing plant, wagon loading and permanent connectivity with railway etc. at an estimated cost of Rs2.85 bn was approved. However, it has been decided to keep it in hold for the time being to restrict debt and conserve liquidity due to uncertainty created by COVID-19 pandemic.

Setting up of a 3.9 MTPA Greenfield Integrated Cement Plant at Mukutban (Maharashtra) with 40 MW Captive Power Plant and 10.60 MW Waste Heat Recovery System at an estimated cost of Rs24.5 bn is in advance stage of implementation. However, commissioning of the project is likely to be delayed due to lockdown and uncertainty created by COVID-19 and is expected to be commissioned in the year 2021-2022.

Marketing Initiatives and Brands For FY20, premium brands accounted for 41% of volumes within the trade segment, up 8% YoY. Sales of Ultimate Ultra could be ramped up and the brand has now established itself as one of the most premium in Madhya Pradesh. Continuing to invest in its Cement-Se-Ghar-Tak strategy of supporting and earning the trust of individual home-builders, the Company has created service teams to provide on-ground support to consumers. To boost the capability and reach of these teams, the Company has fielded young, energetic experts who can reach remote areas on their own motorcycles. Above the line advertising through high visibility television properties such as the General Election, cricket tournaments and popular Hindi news and general entertainment channels has improved top-of-the-mind awareness about MP Birla Cement brands. Even as the Company focused on its flagship brand Perfect Plus in its marketing initiatives during the year, it drove sustained localised campaign for its regional champions such as Unique, Samrat, Samrat Advanced, Ultimate and Chetak brands.

August 03, 2020 6

Allocation of coal mines During the year, the Government of India, Ministry of Coal had approved allocation of 2 coal mines to the company. Once operational, the coal mines are expected to provide fuel security and cost optimization to the company.

Coal mines

Coal Mine State Extractable Reserves (MT) Grade PRC (MTPA) Final Price (Rs/ tn)

Bikram MP 9.44 G-8 0.36 154

Brahampuri MP 12.343 G-6 0.36 156


Mining operations at Chanderia

The Mining Operations (through blasting) at the Chanderia plant had been suspended since Aug’11 owing to the Order of Jodhpur High Court (Rajasthan), which was challenged by the company before the Hon’ble Supreme Court. As a partial relief, the Supreme Court had allowed mining operations beyond 2 kms from the Chittorgarh Fort by using heavy earth moving machinery.

The Hon’ble Supreme Court had further directed the Central Building Research Institute (CBRI) to submit a report after comprehensive study of all relevant aspects and facets relating to full-scale mining operations and its impact, if any, on the Chittorgarh Fort. The report of CBRI has concluded that vibrations and air pressures induced by the mine of Birla Cement Works and adjoining mines are well within safe limits as per national and international standards and there is no damage to the Fort due to the mining operations.

The Company has filed an Interim Application seeking Interim Relief for blasting at the existing working pit. The matter is in the final stage of hearing. The Principal Bench of the National Green Tribunal (NGT) on 8 Mar’19 had ordered to stop all mining activities which are being carried out within the municipal limits of Chittorgarh City and within 10 km of Bassi Wildlife Sanctuary or within the ecosensitive zone of Bassi Wildlife Sanctuary, if finally notified.

The Company has taken effective steps to ensure that no mining activity takes place in the area falling within the restrictions prescribed in NGT’s Order. The Company does not anticipate any material impact of the said Order on the current operations as it has sufficient reserves in areas outside the limits covered by the Order. The matter is pending for hearing.

Risks and Concerns Covid-19 pandemic - The Company has been slowly scaling up production at all its units, but revival and sustenance of demand remains the key red herring. At the time of writing this report, fresh cases of COVID-19 were still on the rise, and workers remained displaced from construction sites. The extent of the impact of the pandemic on demand will depend on how fast the lockdowns are lifted and normalcy returns. For some quarters, it is apprehended that cement makers may have to cope with lower than normal capacity utilisation, which may impact profitability. As a measure of caution, the Company will for now focus on conserving cash and consolidating its position in key markets. Impact on real estate - Across the world, commercial properties as an asset class are the worst affected within the real estate sector. At almost all existing properties, tenants are behind on rents, and new projects are expected to be delayed. People’s income has been impacted and it is feared that demand for cement even among individual home builders may remain subdued for some time.

August 03, 2020 7

Government spending - Much depends on infrastructure spending by the government and revival of low-cost housing projects. The Centre has announced a multi-pronged booster package to strengthen the Indian economy, but tax revenues are under severe pressure. It is, however, still expected that government spending on infrastructure will kick off the first phase of recovery.

Financial Analysis

Capacity Cement capacity flat YoY at 15.5 MTPA in FY20.

Capacity


Cement Production Cement production decreased 0.5% YoY to 13.6 mt in FY20 vs. 13.7 mt in FY19. Volumes were impacted in last 10 days of Mar’20 on account of lockdown due to covid-19. Capacity utilization decreased marginally to 87.7% in FY20 from 88.2% in FY19.

Production and Capacity utilization


9.9

15.5 15.5 15.5 15.5

8

9

10

11

12

13

14

15

16

FY16 FY17 FY18 FY19 FY20

Cement Capacity (MT)

81.2

65.1

80.1

88.2 87.7

60

70

80

90

100

6

7

8

9

10

11

12

13

14

15


Cement Production (MT) Capacity Utilization

August 03, 2020 8

Revenue and revenue Growth Revenue increased by 5.6% YoY in FY20 to Rs69.2 bn led by 6.4% increase in realization which was partially offset by minor fall in volume by 0.5% YoY.

20.6% revenue CAGR between FY16-FY20 Revenue Mix

Sources: Company, DART Sources: Company, DART

Volume Trend Cement volume marginally down by 0.5% YoY to 13.6 mt in FY20. Volume of premium cement grew 8% YoY and its share within trade segment up 4% YoY to 41% indicating that the sustained investments into its brands and distribution assets together with its continuous drive to offer high quality products to the customers are paying off. High yielding blended cement accounted for 93% of volumes vs. 89% in FY19. Also, increase in sale of blended cement implies higher absorption of fly ash which reduces clinker consumption and boosts profitability. Jute volume down 7.9% YoY to 35,071 tn in FY20.

Cement volume trend Jute volume trend


Realization Trend Realization up 6.4% YoY to Rs4,846/ tn in FY20 through judicious adjustment of geographic focus and product mix aimed at increasing the share of premium and blended cement within its brand portfolio aided by high quality of the products. Sales of the premium slag brand, MP Birla Cement Unique (sold in eastern India markets), grew 18% YoY. Among new launches, the super-premium Ultimate Ultra brand with water-repellent properties has made its mark in Madhya Pradesh. Samrat Advanced, a premium variant of the Company’s heritage MP Birla Cement Samrat brand, gained significant grounds in key markets of eastern Uttar Pradesh.

32.7

43.5

57.365.5 69.2

0.0%

10.0%

20.0%

30.0%

40.0%

0

20

40

60

80


Total Revenue (Rs bn) Revenue growth (%)

90.4 92.2 94.6 94.9 95.2

9.6 7.5 5.4 5.1 4.8

0%

20%

40%

60%

80%

100%


Cement Revenue (%) Jute Revenue (%)

8.0

10.1

12.413.7 13.6

-10.0%

0.0%

10.0%

20.0%

30.0%

0

5

10

15


Cement Volume (MT) Growth (%)

39,293

36,445 37,215

38,091

35,071

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

32,000

34,000

36,000

38,000

40,000


Jute Volume (MT) Growth (%)

August 03, 2020 9

Realization trend


Expenses Raw materials cost decreased by 2.4% YoY to Rs9.2 bn. Raw material cost/ tn too decreased 1.9% YoY to Rs677/ tn.

Raw material as a % to revenue Raw material cost/ tn trend


Employee expenses increased by 10.0% YoY to Rs4.1 bn in FY20 as against Rs3.7 bn in FY19. Employee cost/ tn too increased 10.6% YoY to Rs300/ tn as against Rs272/ tn in FY19.

Employee exp as a % to revenue Employee exp/ tn trend


36773978

4371 45544846

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

0

1,000

2,000

3,000

4,000

5,000

6,000


Realization/ tn (Rs) Growth (%)

18.5%

15.6%14.5% 14.4%

13.3%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

2

4

6

8

10


Total Raw Material (Rs bn) % of Revenue

751

674 672690

677

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

600

640

680

720

760


Total Raw Material/ tn (Rs) Growth (%)

7.5%7.0%

6.2%

5.7%5.9%

4.0%

5.0%

6.0%

7.0%

8.0%

0

1

2

3

4

5


Employee expense (Rs bn) % of Revenue

303 304

288

272

300

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

250

260

270

280

290

300

310


Employee expense/ tn (Rs) Growth (%)

August 03, 2020 10

Power and fuel cost decreased 7.0% YoY to Rs13.8 bn as against Rs14.9 bn in FY19. Power and Fuel cost/ tn too decreased 6.5% YoY to Rs1,017/ tn as against Rs1,088/ tn in FY19. Scaling up of captive coal production from Sial Ghogri captive coal mine, power generation from newly installed solar power units and WHRS helped reduce power and fuel costs. During the year, the company concluded the installation of the 11 MW Waste Heat Recovery System at Maihar and solar power plants with aggregate generation capacity of 12 MW at Maihar, Satna and Chanderia.

Details of power generation

Particulars (lakh units) FY16 FY17 FY18 FY19 FY20

Thermal Power Plant 3,390 3,690 3,672 3,314 3,820 WHRS 1,194 1,083 1,005 1,225 1,210 Solar Power 29 27 27 25 52


Power & Fuel cost as a % to revenue Power & Fuel cost/ tn trend


Freight charges decreased 1.7% YoY to Rs16.2 bn as against Rs16.5 bn in FY19. Freight charges/ tn too decreased 1.2% YoY to Rs1,196/ tn as against Rs1,211/ tn in FY19. Alongside, the company concluded the construction of the railway siding facility at Kundanganj in Uttar Pradesh, where RCCPL has a grinding unit. This facility, which is now fully operational, helped bring down freight cost. The Company also benefited from rationalisation in road freight.

Freight cost as a % to revenue Freight cost/ tn trend


23.7%

22.3%22.7% 22.7%

20.0%

18.0%

19.0%

20.0%

21.0%

22.0%

23.0%

24.0%

0

2

4

6

8

10

12

14

16


Power & Fuel cost (Rs bn) % of Revenue

964 961

10511088

1017

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

850

900

950

1,000

1,050

1,100


Power & Fuel cost/ tn (Rs) Growth (%)

24.0%

22.7%

25.2% 25.2%

23.5%

21.0%

22.0%

23.0%

24.0%

25.0%

26.0%

0

5

10

15

20


Freight cost (Rs bn) % of Revenue

975 980

1164 1211 1196

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

0

200

400

600

800

1,000

1,200

1,400


Freight cost/ tn (Rs) Growth (%)

August 03, 2020 11

Other expenses increased by 8.5% YoY to Rs12.5 bn as against Rs11.5 bn in FY19. Other expenses/ tn too increased 9.0% YoY to Rs918/ tn as against Rs842/ tn in FY19.

Other expenses as a % to revenue Other expenses/ tn trend


Total cost down 0.4% YoY to Rs55.8 bn as against Rs56.0 bn in FY19. Cement cost/ tn up 0.1% YoY to Rs3,881/ tn as against Rs3,875/ tn in FY19. Due to the global slowdown in demand, commodity prices have corrected sharply and are expected to remain soft in FY21. This should reduce variable costs such as pet coke, diesel, fly ash and slag. But the benefits of reduced variable costs will likely be neutralised by poor absorption of fixed costs due to low capacity utilisation.

Total cost as a % to revenue Cement cost/ tn trend


17.6%

18.0%

17.2%

17.6%

18.0%

16.8%

17.0%

17.2%

17.4%

17.6%

17.8%

18.0%

18.2%

0

2

4

6

8

10

12

14


Other expenses (Rs bn) % of Revenue

717776 796

842918

-10.0%

-5.0%

0.0%

5.0%

10.0%

0

200

400

600

800

1,000


Other expenses/ tn (Rs) Growth (%)

91.2%

85.7% 85.9% 85.5%

80.7%

75.0%

80.0%

85.0%

90.0%

95.0%

0

10

20

30

40

50

60


Total Cost (Rs bn) % of Revenue

33213401

3743

3875 3881

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

3,000

3,200

3,400

3,600

3,800

4,000


Cement Cost/ tn Growth (%)

August 03, 2020 12

Margins EBITDA margin increased by 483 bps YoY to 19.3% in FY20. EBITDA/ tn too increased by 42.1% YoY to Rs967/ tn as against Rs680/ tn in FY19. This was mainly because of higher realizations (Rs4,846/ tn, +6.4% YoY) which was marginally offset by higher cost (Rs3,881/ tn, +0.1% YoY) in FY20.

EBITDA Margin Trend Cement EBITDA/ tn Trend


Depreciation: Depreciation increased by 3.8% YoY to Rs3.5 bn in FY20 as against Rs3.4 bn in FY19, mainly due to increase in gross block by 5.0% YoY to Rs87.5 bn in FY20 as against Rs83.4 bn in FY19. Finance Cost: Finance cost up 4.6% YoY to Rs3.9 bn in FY20 as against Rs3.7 bn in FY19. Total Debt increased by 4.4% YoY to Rs42.3 in FY20 as against Rs40.5 bn in FY19. Effective Tax Rate: Total effective tax rate for FY20 stood at 25.9% vs. 19.4% in FY19. APAT: Reported PAT increased by 97.6% YoY to Rs5.1 bn in FY20 as against Rs2.6 bn in FY19. After adjusting exceptional items, APAT increased by 107.1% YoY to Rs4.9 bn in FY20 as against Rs2.4 bn in FY19. APAT margin increased by 345 bps YoY to 7.0% in FY20 as against 3.6% in FY19. Return Ratios: ROCE increased by 428 bps YoY to 9.1% in FY20 as against 4.8% in FY19 and ROE also increased by 511 bps YoY to 10.5% from 5.4% in FY19.

PAT margin trend Return Ratios Trend


8.8%

14.3% 14.1% 14.5%

19.3%

5.0%

10.0%

15.0%

20.0%

0

2

4

6

8

10

12

14

16


EBITDA (Rs bn) EBITDA Margin (%)

356

588 629 680

967

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

0

200

400

600

800

1,000

1,200


Cement EBITDA/ tn (Rs) Growth (%)

6.1%5.2%

2.5%

3.6%

7.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

0

1

2

3

4

5

6


APAT (Rs bn) APAT Margin (%)

6.9 7.3

3.8

5.4

10.5

3.1

5.6

4.04.8

9.1

0

2

4

6

8

10

12


ROE (%) ROCE (%)

August 03, 2020 13

Balance Sheet Analysis Networth: Networth increased 6.9% YoY to Rs48.1 bn in FY20 as against Rs45.0 bn in FY19.

Net Debt: Net Debt marginally down by 0.5% YoY to Rs32.9 bn in FY20 as against Rs33.1 bn in FY19. Net D:E down to 0.69x in FY20 as against 0.74x in FY19. Net Debt/ EBITDA decreased to 0.69x in FY20 as against 0.74x in FY19.

The Company has chosen not to take the moratorium on loan servicing offered by the Reserve Bank of India in the wake of the COVID-19 pandemic. In view of the challenges, the Company is taking several initiatives such as deferring capital expenditure to protect profitability, guard financial metrics and conserve liquidity. These measures have been taken despite securing financial closure for all outstanding projects.

Net D:E trend Net Debt/ EBITDA trend


Gross Block: The company incurred a capex of Rs9.9 bn in FY20 vs. Rs4.9 bn in FY19, a growth of 100.3% YoY. Gross Block stands at Rs87.5 bn in FY20 vs. Rs83.4 bn in FY19, a growth of 5.0% YoY. Fixed Asset turnover remains flat YoY at 0.79x.

Gross Block, Capex & FA Turnover Trend


(0.2)

1.1

0.8 0.7 0.7

(0.4)

(0.2)

-

0.2

0.4

0.6

0.8

1.0

1.2

(10)

0

10

20

30

40


Net Debt (Rs bn) Net D:E (x)

(0.16)

1.10

0.82 0.74 0.69

(1)

0

1

1

2


Net Debt/ EBITDA (x)

21.8

67.7

81.0 83.487.5

1.7

23.7

3.1 4.99.9

1.50

0.640.71 0.79 0.79

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

0

10

20

30

40

50

60

70

80

90

100


Gross Block (Rs bn) Capex (Rs bn) FA Turnover (x)

August 03, 2020 14

Working Capital: Trade receivables decreased to Rs2.5 bn in FY20, a de-growth of 4.5% YoY resulting in rise in debtor days to 14 days from 13 days YoY. Inventories almost flat at Rs7.9 bn in FY20, a growth of 0.6% YoY resulting in similar inventory days of 41 days YoY. Trade payables decreased to Rs5.2 bn in FY20, a de-growth of 16.7% YoY resulting in decreased trade payable days of 30 vs. 32 days.

Debtor, Inventory and Creditor Days


Cash Flow: Cash flow from operations increased by 26.0% YoY to Rs13.4 bn in FY20 compared to Rs10.6 bn in FY19. Cash flow from investing doubled to (Rs11.8 bn) in FY20 vs. (Rs5.4 bn) in FY19. Cash flow from financing decreased to (Rs0.4 bn) in FY20 compared to (Rs6.0 bn) in FY19.

Cash Flows Trend


Dividend: Birla Corp declared a dividend of Rs7.5 per equity share on face value of Rs10 per share in FY20 vs. Rs7.5 per equity share in FY19. The cash outflow on account of dividend and dividend distribution tax amounted to Rs577.5 mn in FY20 vs. Rs696.3 mn in FY19.

10 10 10 13 14

63

50

42 41 41

1822

2832 30

0

10

20

30

40

50

60

70


Debtor Days Inventory Days Creditor Days

(20)

(15)

(10)

(5)

0

5

10

15


CFO (Rs bn) CFI (Rs bn) CFF (Rs bn) FCFF (Rs bn)

August 03, 2020 15

Subsidiary Financials Subsidiary Financials

Particulars (Rs bn) Standalone Consolidated Difference

Revenue 47.5 69.2 21.7 Expenditure 40.7 55.8 15.1 EBITDA 6.8 13.4 6.6 Depreciation 1.5 3.5 2.0 PBIT 5.2 9.8 4.6 Other Income 0.8 0.9 0.0 Interest 1.9 3.9 2.0 PBT 4.2 6.8 2.6 Tax 1.1 1.8 0.7 PAT 3.2 5.1 1.9


August 03, 2020 16

Profit and Loss Account

(Rs Mn) FY19A FY20A FY21E FY22E

Revenue 65,487 69,157 55,659 75,953

Total Expense 56,001 55,797 45,879 61,682

COGS 40,798 39,250 31,471 43,124

Employees Cost 3,707 4,079 4,079 4,487

Other expenses 11,497 12,469 10,329 14,072

EBIDTA 9,486 13,360 9,780 14,271

Depreciation 3,391 3,519 3,692 4,332

EBIT 6,095 9,841 6,088 9,939

Interest 3,705 3,877 4,044 4,430

Other Income 785 851 751 851

Exc. / E.O. items 0 0 0 0

EBT 3,174 6,815 2,795 6,360

Tax 617 1,763 839 1,908

RPAT 2,557 5,052 1,957 4,452

Minority Interest 0 0 0 0

Profit/Loss share of associates 0 0 0 0

APAT 2,351 4,869 1,957 4,452

Balance Sheet


Sources of Funds

Equity Capital 770 770 770 770

Minority Interest 0 0 0 0

Reserves & Surplus 44,182 47,291 48,670 52,545

Net Worth 44,952 48,061 49,440 53,315

Total Debt 40,492 42,260 46,626 50,726

Net Deferred Tax Liability 7,422 8,568 8,568 8,568

Total Capital Employed 92,866 98,889 1,04,635 1,12,609

Applications of Funds

Net Block 72,662 73,273 74,581 1,01,749

CWIP 9,119 16,020 21,520 2,379

Investments 2,764 1,600 1,600 1,600

Current Assets, Loans & Advances 28,770 30,862 25,647 31,611

Inventories 7,830 7,876 6,557 8,740

Receivables 2,622 2,504 2,287 2,913

Cash and Bank Balances 1,390 2,558 1,732 1,666

Loans and Advances 12 11 11 11

Other Current Assets 10,913 11,151 9,198 12,019

Less: Current Liabilities & Provisions 20,450 22,865 18,713 24,730

Payables 6,273 5,228 4,727 6,243

Other Current Liabilities 14,177 17,638 13,986 18,487

sub total

Net Current Assets 8,320 7,997 6,934 6,881

Total Assets 92,866 98,889 1,04,635 1,12,609

E – Estimates

August 03, 2020 17

Important Ratios

Particulars FY19A FY20A FY21E FY22E

(A) Margins (%)

Gross Profit Margin 37.7 43.2 43.5 43.2

EBIDTA Margin 14.5 19.3 17.6 18.8

EBIT Margin 9.3 14.2 10.9 13.1

Tax rate 19.5 25.9 30.0 30.0

Net Profit Margin 3.9 7.3 3.5 5.9

(B) As Percentage of Net Sales (%)

COGS 62.3 56.8 56.5 56.8

Employee 5.7 5.9 7.3 5.9

Other 17.6 18.0 18.6 18.5

(C) Measure of Financial Status

Gross Debt / Equity 0.9 0.9 0.9 1.0

Interest Coverage 1.6 2.5 1.5 2.2

Inventory days 44 42 43 42

Debtors days 15 13 15 14

Average Cost of Debt 9.1 9.4 9.1 9.1

Payable days 35 28 31 30

Working Capital days 46 42 45 33

FA T/O 0.9 0.9 0.7 0.7

(D) Measures of Investment

AEPS (Rs) 30.5 63.2 25.4 57.8

CEPS (Rs) 74.6 108.9 73.4 114.1

DPS (Rs) 9.0 9.0 7.5 7.5

Dividend Payout (%) 29.6 14.3 29.5 13.0

BVPS (Rs) 583.7 624.1 642.0 692.4

RoANW (%) 5.4 10.5 4.0 8.7

RoACE (%) 6.8 9.3 5.9 8.2

RoAIC (%) 6.7 10.5 6.1 9.3

(E) Valuation Ratios

CMP (Rs) 599 599 599 599

P/E 19.6 9.5 23.6 10.4

Mcap (Rs Mn) 46,145 46,145 46,145 46,145

MCap/ Sales 0.7 0.7 0.8 0.6

EV 79,244 79,086 85,178 88,944

EV/Sales 1.2 1.1 1.5 1.2

EV/EBITDA 8.4 5.9 8.7 6.2

P/BV 1.0 1.0 0.9 0.9

Dividend Yield (%) 1.5 1.5 1.3 1.3

(F) Growth Rate (%)

Revenue 14.3 5.6 (19.5) 36.5

EBITDA 17.4 40.8 (26.8) 45.9

EBIT 28.1 61.5 (38.1) 63.2

PBT 98.6 114.7 (59.0) 127.5

APAT 61.5 107.1 (59.8) 127.5

EPS 61.5 107.1 (59.8) 127.5

Cash Flow


CFO 10,641 13,412 7,701 12,172

CFI (5,434) (11,840) (8,271) (11,331)

CFF (6,016) (404) (256) (907)

FCFF 6,444 3,505 (2,799) (187)

Opening Cash 2,198 1,390 2,558 1,732

Closing Cash 1,390 2,558 1,732 1,666

E – Estimates

DART RATING MATRIX

Total Return Expectation (12 Months)

Buy > 20%

Accumulate 10 to 20%

Reduce 0 to 10%

Sell < 0%

Rating and Target Price History

Month Rating TP (Rs.) Price (Rs.)

Jun-20 Buy 650 634

*Price as on recommendation date

DART Team

Purvag Shah Managing Director [email protected] +9122 4096 9747

Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709

Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735

Yomika Agarwal VP - Equity Sales [email protected] +9122 4096 9772

Jubbin Shah VP - Derivatives Sales [email protected] +9122 4096 9779

Ashwani Kandoi AVP - Equity Sales [email protected] +9122 4096 9725

Lekha Nahar AVP - Equity Sales [email protected] +9122 4096 9740

Equity Trading Designation E-mail

P. Sridhar SVP and Head of Sales Trading [email protected] +9122 4096 9728

Chandrakant Ware VP - Sales Trading [email protected] +9122 4096 9707

Shirish Thakkar VP - Head Domestic Derivatives Sales Trading [email protected] +9122 4096 9702

Kartik Mehta Asia Head Derivatives [email protected] +9122 4096 9715

Dinesh Mehta Co- Head Asia Derivatives [email protected] +9122 4096 9765

Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705

360

420

480

540

600

660

May-2

0

Jun-2

0

Jul-20

(Rs) BCORP Target Price

Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013

Our Research reports are also available on Reuters, Thomson Publishers, DowJones and Bloomberg (DCML <GO>)

Analyst(s) Certification The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil)

II. Disclaimer: This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited. and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its affiliated company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or completeness. Dolat Capital Market Private Limited. may 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 report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market Private Limited. reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market Private Limited. and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Dolat Capital Market Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions.

For U.S. Entity/ persons only: This research report is a product of Dolat Capital Market Private Limited., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered broker-dealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer/Entity as informed by Dolat Capital Market Private Limited. from time to time.

Dolat Capital Market Private Limited.

Corporate Identity Number: U65990DD1993PTC009797 Member: BSE Limited and National Stock Exchange of India Limited.

SEBI Registration No: BSE - INB010710052 & INF010710052, NSE - INB230710031& INF230710031, Research: INH000000685 Registered office: Office No. 141, Centre Point, Somnath, Daman – 396 210, Daman & Diu

Board: +9122 40969700 | Fax: +9122 22651278 | Email: [email protected] | www.dolatresearch.com

Documents

Birla Corporation - Moneycontrol.com