Birla Corporation CMP - Spark Capitalmailers.sparkcapital.in/uploads/Girish/Birla corp_Aug 2016.pdf · Birla Corporation Company Overview – 56% of capacity in Central region BCORP’s

Birla Corporation CMP

Rs. 640

Target

Rs. 765

Rating

BUY

Birla Corporation

Financial summary (Consolidated)

Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) EV/EBITDA(x) EV/t (Rs/t)

FY16 32,252 2,355 1,574 20.4 18.5 4,646

FY17E 44,825 6,445 2,669 34.7 14.1 6,788

FY18E 58,645 9,764 3,217 41.8 9.1 6,361

Play on favourable Central region at attractive valuations

Stock performance (%)

1m 3m 12m

BCORP 2% 45% 31%

Sensex 2% 8% 12%

Update date Sept, 2016

Market Data

SENSEX 28,599

Nifty 8779

Bloomberg BCORP IN

Shares o/s 77mn

Market Cap Rs. 49bn

52-wk High-Low Rs. 697-322

3m Avg. Daily Vol 30,996

Index member BSE 500

Latest shareholding (%)

Promoters 62.9

Institutions 19.9

Public 17.2

Birla Corporation has an installed capacity of 15.4mt, with presence in Central (56%), North (26%), East (15%), and West

(3%). We are positive on BCORP’s long term prospects, given (1) favorable regional exposure; (2) increased scale of

operations post Reliance Cement acquisition; (3) financial de-leverage; and (4) attractive valuations.

Investment thesis:

Increased scale of operations; Dominant player in the favorable Central markets: BCORP’s scale of operations has

increased to 15.4mt from 9.8mt, post the acquisition of 5.58mt capacity of Reliance Cement (will be consolidated in

2QFY17). The company is now the eight largest cement company in India with exposure in North, Central, and East

regions. BCORP will be a dominant player in the Central market, with 17% share of the installed Central region capacity,

behind UltraTech Cement 22% share post acquisition of Jaypee assets. Central region is one of the most favored region

given strong demand-supply dynamics. Utilisations of 85%, low new supply visibility, consolidated market (top 5 having 70%

market share of the region)

Reliance Cement acquisition, a step in the right direction: BCORP acquired Reliance Cement for an enterprise value of

Rs. 48bn, with a current capacity of 5.58mt implying an EV/t of $130/t. Further, Reliance Cement has land and leases to

expand in Rajasthan, Gujarat, Chhattisgarh, Karnataka, and Himachal Pradesh. The deal enhances BCORP’s position as it

(1) strengthens footprint in one of the most favored cement market (Central region); (2) aids optimization of logistics in the

Central markets; (3) Adds modern/ efficient plants to its portfolio; (4) Reliance Cement is eligible for VAT incentives over the

next 10-12 years; (5) De-risks the earnings from low profitable Chanderia operations (hampered due to limestone mining

ban). North capacity exposure will reduce to 26% from the current 41%.

Balance sheet quality to ease led by strong cash flow generation: BCORP’s FY16 net cash was ~Rs. 5bn. With the

acquisition of Reliance Cement, we expect BOCPR’s net debt to peak out Rs. 42bn in FY17E. With strong operating cash

flow generation to the tune of Rs. 24bn over FY17-FY19E and limited capex outlay, expect net debt to equity to trend down

from Rs. 1.5x to 1x by FY19E. Hence, the current balance sheet quality is not a cause of concern.

Valuation and view: We expect FY17-19E volume and realisation growth CAGR of 15% and 5% respectively due to

consolidation of Reliance Cement and demand revival in its key markets. EBITDA to grow by 34% CAGR over FY17-

FY19E.The stock trades at $95/t and 9x FY18E EBITDA vs. mid cap average of 10x FY18E EV/EBITDA. We believe this

discount is unwarranted given the increasing scale of operations, favorable regional exposure, and balance sheet de-

leveraging. We value BCORP at 10x FY18E EV/EBITDA. We have a Buy Rating with a TP of Rs. 765/share

GIRISH CHOUDHARY [email protected] +91 44 4344 0021

GAURAV NAGORI [email protected] +91 44 4344 0072 Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

Page 1

Birla Corporation

Company overview – 15.4mt capacity with presence in four regions

Birla Corporation’s Capacity profile – Increased scale of operations post acquisition of Reliance Cement’s 5.58mt capacity

Source: Spark Capital Research

Existing Capacity Post acquisition

Chanderia

Rajasthan

Satna

Raibareli

Durgapur

U.P

M.P W.B

1.3 Mt

2.3 Mt

2.2 Mt 3.4 Mt

4.0 Mt 3.4 Mt

Chanderia

Rajasthan

Satna

Raibareli

Durgapur

Reliance Maihar

Kundanganj

Butibori

U.P

M.P W.B

Maharashtra

2.0 Mt

1.3 Mt

2.3 Mt

3.08 Mt 3.3 Mt

2.2 Mt 3.4 Mt

0.5 Mt

4.0 Mt 3.4 Mt

Cement Clinkers 15.4 Mt 10.0 Mt Total ►

Future expansion opportunities. Reliance Cement

has land and leases to expand in Rajasthan,

Gujarat, Maharashtra. Chhattisgarh, Karnataka,

and Himachal Pradesh

Page 2

Birla Corporation

Company Overview – 56% of capacity in Central region

BCORP’s plant-wise cement and clinker capacity

Source: Spark Capital Research.

Region wise capacity mix – Presence in four regions

Note: Capacity mix for Birla corp standalone. Source: Spark Capital Research

Region wise capacity share – Sizeable capacity share in Central region

Note: Capacity share for Birla corp standalone. Source: Spark Capital Research

Top cement manufacturers in India – BCORP among top 8

Source: Spark Capital Research

Plant Location Cement (mt) Clinker (mt)

Chanderia Rajasthan 4.0 3.4

Satna MP 2.2 3.3

Raibareli UP 1.3

Durgapur WB 2.3

Reliance Maihar MP 3.08 3.3

Kundanganj UP 2.0

Butibori Maharashtra 0.5

Total 15.4 10.0

Company FY16 Geographical spread

UltraTech 65.0 North, East, West, South, Central

Holcim (ACC + Ambuja) 67.6 North, East, West, South, Central

Shree Cement 27.0 North and East

Dalmia Bharat 25.0 East, West, South, North East

Ramco Cement 16.5 South and East

India Cement 15.7 South and North

Birla Corp 15.4 North, Central, and East

North 26%

Central 56%

East 15%

West 3%

Post deal

5%

17%

4%

1% 0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

North Central East West

Capacity share %

North, 41%

Central, 36%

East, 23%

Pre deal

Page 3

Birla Corporation

Analysis of Regions where BCORP is Present

Central Markets

North Markets

East Markets

Play on both demand and price

Play on both demand and price

Play on demand

Page 4

Birla Corporation

Increasing utilisations support prices in region

Source: Spark Capital

Around 70% of Central India’s capacity is held by five players


Demand break up of states in Central – ~50mt consumed in FY16


Central region demand growth


Uttar Pradesh 70%

Madhya Pradesh 30%

Central region – Consolidated market with nil capacity additions will aid better pricing power

UTCEM+JP, 22%

BCORP+Rel Cem, 17%

Holcim, 11% Prism cement, 11%

Heidelberg, 9%

Others 29% 8.1%

4.4%

10.1%

17.6%

10.4%

7.0%

3.0% 4.0%

6.0% 6.0% 6.0% 7.0%

8.0% 8.0%

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14E

FY

15

FY

16

FY

17E

FY

18E

FY

19E

FY

20E

Demand growth

97% 93% 86% 82% 79% 82% 85% 89%

96% 99%

20%

40%

60%

80%

100%

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Central region utilisations

Page 5

Birla Corporation

Rolling three year realisations CAGR below Costs since FY09 in North

region

Source: Company, Spark Capital

North region – Expect gradual recovery in price from the lows led by bottoming of utilisations

North India based cement manufacturers have been under pressure over the

last few years due to weak demand and new supplies (especially from newer

entrants in the region like Wonder Cement and Lafarge). The industry has

lacked pricing power as a result, margins more than halved from FY10 peak

levels. Interestingly, despite higher utilisations in North region versus South

region, the cement prices in North are currently 30% lower than prices in the

South.

Cement prices in North have touched its five year low in Jan15 and recovered

since then (30% from lows). We continue to expect gradual revival in prices

from a low base led by (1) Incremental supply vs. incremental demand gap in

North region turning favorable from FY17E onwards; (2) New capacities in the

region are coming from existing players, unlike in past which came from new

entrants; (3) Current profitability not sustainable on a longer basis.

We have modeled 6% price growth in the region over FY17E and FY18E and

8%-10% in FY19-20E.

North India - Demand, supply, Utilisations, and pricing trends

in million tons FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Total capacity 28 30 33 42 48 59 62 64 67 74 79 84 85 88 91 94

Effective capacity 28 28 31 35 44 49 58 60 64 67 73 78 82 83 87 91

Production 26 30 32 37 41 46 48 52 56 58 61 63 67 72 77 85

Consumption 24 27 30 34 35 38 42 46 48 51 53 55 58 62 67 74

Demand growth 6% 12% 10% 12% 4% 9% 8% 10% 6% 5% 5% 3% 5% 7% 9% 10%

Utilisations% 94% 106% 105% 105% 94% 94% 82% 87% 88% 87% 84% 81% 81% 86% 89% 93%

Pricing growth 11% 13% 27% 10% 0% 2% 5% 3% 6% -4% 3% -6% 6% 6% 8% 10%

Incremental

supply 2 0 3 4 9 5 10 2 3 3 6 5 4 1 4 5

Incremental

demand 1 3 3 4 2 3 3 4 3 2 3 2 3 4 5 7

Surplus/(Deficit) 0 (3) (0) 1 8 1 6 (2) 0 1 3 3 1 (3) (1) (2)

7%

20%

30%

11%

4% 1%

3%

10%

2%

0% -1%

0%

5% 4%

15%

24%

16%

8% 5%

7% 8% 6%

4% 1%

-2% -1% -5%

0%

5%

10%

15%

20%

25%

30%

35%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Rolling 3yr CAGR % - Realisation Rolling 3yr CAGR % - Costs

Page 6

Birla Corporation

Prices in North are at a substantial discount to South


-2%

-13%

-3%

5% 0%

4%

16% 12%

0%

-6%

9% 7%

-9% -10% -14%

-19%

-29% -35% -30% -25% -20% -15% -10% -5% 0% 5%

10% 15% 20%

FY

00

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

North Cement Prices (Rs/bag) discount/premium to South Cement prices

Average cement prices in North recovered after plunging to 5 years low

in Jan16


Pricing discipline has not worked in North, given efficient operations…


North Region prices at significant discount to South region despite better utilisations

… and healthy balance sheets versus South peers


1.6

0.9 1.3

-0.3

1.6

0.9 0.7

1.2

0.0

-0.2 -0.5 -1.0

-0.5

0.0

0.5

1.0

1.5

2.0

JK

Cem

ent

Mangala

m

JK

Lakshm

i

Shre

e

Dalm

ia

India

Cem

ents

Madra

s

Orie

nt

Ultra

Te

ch

AC

C

Am

buja

North South Pan India

Net

de

bt

to E

qu

ity (

x)

4,078

3,273 3,211

2,702

3,880 3,892

3,432

2,904

3,955 3,956 3,638

1,500

2,000

2,500

3,000

3,500

4,000

4,500

JK

Cem

ent

Mangala

m

JK

Lakshm

i

Shre

e

Dalm

ia

India

Cem

ents

Madra

s

Orie

nt

Ultra

Te

ch

AC

C

Am

buja

North South Pan India

To

tal co

st

pe

r to

n

200

220

240

260

280

300

320

340

360

380

400

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Cem

en

t P

rice (

Rs/b

ag

)

North South

Page 7

Birla Corporation

Housing shortage high in East and Central states


East Capacity and utilizations – Expect 11mt additions by FY18E


Eastern region demand growth trends


Pricing in the East have been under pressure over the last two years


Eastern region – Demand potential remains high

2.78

4.59

2.99 4.15 4.17

18.68

0

2

4

6

8

10

12

14

16

18

20

North East West South Central India

Mn

Un

its

8%

19%

-4%

5%

18%

4%

-2%

2%

-10%

-5%

0%

5%

10%

15%

20%

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

OCL realisation growth %

13%

18%

6%

11%

5% 3% 6% 6% 7% 8% 9% 10%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

East region demand growth %

31 39 42 44 46 48 52 58 66 69 73 73

90% 87%

81%

81% 81%

80%

82%

79%

75% 74% 76%

79%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

70

80

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E

Total capacity (mt) East Capacity Utilization %

Page 8

Birla Corporation

Realisations were under pressure in North/Central markets in FY16


Capacity increase from 6mt in FY08 to 10mt by FY16


Volume CAGR of 5% over FY08-FY18


Operating at healthy utilization rates


Profile on BCORP’s existing operations – Steady track record of capacity expansion and volume growth

5.8 5.8 5.8

7.5 8.7

9.4 9.4 9.4 9.8

0

1

2

3

4

5

6

7

8

9

10

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Capacity (mt)

5.3 5.3 5.7 5.9 6.0 6.5 7.4 7.6 8.0

1% 1% 6% 5%

0% 9%

14%

3%

6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

1

2

3

4

5

6

7

8

9


Volumes (mt) % growth

91% 91%

98%

89%

73% 71%

78% 81%

85%

60%

65%

70%

75%

80%

85%

90%

95%

100%


Utilisations %

3,0

03

3,0

73

3,5

39

3,2

14

3,4

24

3,8

27

3,7

22

3,8

52

3,6

18

10%

2%

15%

-9%

7%

12% -3% 4% -6%

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


Realisations (Rs/t) % growth

Page 9

Birla Corporation

Clinker Purchase has hurt margins in the past


Costs/ profile


FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY12-FY16 CAGR

RM costs/t 391 533 633 764 888 831 934 890 1,025 6%

% y-o-y change 9% 36% 19% 21% 16% -6% 12% -5% 15%

Power & fuel costs/t 622 690 675 773 895 955 1,042 1,141 964 5%

% y-o-y change 6% 11% -2% 15% 16% 7% 9% 9% -15%

Freight costs/t 382 457 478 507 548 689 750 774 786 9%

% y-o-y change 6% 20% 5% 6% 8% 26% 9% 3% 2%

Total costs/t 1,910 2,276 2,294 2,510 2,895 3,280 3,435 3,531 3,325 6%

% y-o-y change 7% 19% 1% 9% 15% 13% 5% 3% -6%

Profile on BCORP’s existing operations – Costs hurt due to mining ban at its North plant and clinker shortage

Company’s operations were hit adversely at

its Chanderia unit post the limestone ban

ordered by Jodhpur High Court in August

2011. BCORP had to resort to external

limestone and clinker, which resulted in

~Rs.1.4bn increase in costs or ~Rs. 215/t in

FY13. Currently the matter is with Supreme

Court, which has appointed Central

Building Research Institute to do a study on

impact of full scale mining operations.

295

529

758

924

628

1,5

03

828

189

816

0

200

400

600

800

1,000

1,200

1,400

1,600


Clinker purchase (Rs. mn)

Page 10

Birla Corporation

Dividend payout


OCF and FCF – Decent track record of FCF generation


Leverage – Net cash balance sheet till Reliance Cement acquisition


RoE and RoCE profile


Profile on BCORP’s existing operations – Strong balance sheet

47%

28%

36%

17% 11% 11%

5% 7% 6%

37%

24%

28%

13%

9% 9% 6% 6% 6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


RoE % RoCE%

4 4

6 6 6 7

6

6 6

8% 11%

8% 14% 19%

20% 36%

26% 29%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

1

2

3

4

5

6

7

8


Dividend per share Dividend payout ratio%

-4

-6

-7

-6

-3 -3

-4

-5 -5

(0.37)

(0.44) (0.42)

(0.27)

(0.14) (0.14) (0.16) (0.17) (0.19)

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

-8

-7

-6

-5

-4

-3

-2

-1

0


Net debt (Rs bn) Net debt to equity %

3,9

41

4,0

48

4,4

93

2,4

65

2,4

41

1,9

59

3,6

22

2,7

84

2,4

46

598

3,4

32

(3,2

90)

(1,8

63) (

593)

205

(671)

1,9

25

1,5

57

-4,000

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000


Operating cash flows (Rs. mn) Free cash flows (Rs mn)

Page 11

Birla Corporation

Reliance Cement Asset profile – Utilisations, Volumes, Costs/t,

EBITDA/t, Absolute EBITDA (Rs. Mn)


Acquisition of Reliance Cement – Good strategic fit for BCORP; Increased exposure to Central region

Birla Corporation’s deal with Reliance Cement brings the following

synergies:

Strengthens BCORP’s footprint in one of the most favored cement

market (Central region)

Optimization of logistics in the Central and East markets will aid savings

to the tune of Rs. 200/t

Addition of modern and efficient plants to its portfolio of cement assets

Reliance Cement is eligible for incentives worth Rs. 10bn over the next

12 years

Future expansion opportunities. Reliance Cement has land and leases to

expand in Rajasthan, Gujarat, Chhattisgarh, Karnataka, and Himachal

Pradesh

De-risks the earnings from low profitable Chanderia operations

(hampered due to limestone mining ban). North capacity exposure will

reduce to 26% from the current 41%.

North 26%

Central 56%

East 15%

West 3%

4.0 3.5 2.3

9.8 5.1

0.5

5.6

0

2

4

6

8

10

12

14

16

18

North Central East West Total

Birla Corp Reliance Cement

FY14 FY15 FY16

Capacity 5.5 5.5 5.6

Volumes in mt 0.2 1.7 3.3

% growth 650% 100%

Utilisations % 4% 30% 59%

Realisations/t 3,261 2,904 4,434

% growth -11% 53%

EBITDA/t (137) 83 749

% growth NM 804%

EBITDA in mn (30) 137 2,473

EBITDA margins % (0) 3% 17%

BCORP + Reliance = Total Capacity (Region wise)


Combined capacity mix


Page 12

Birla Corporation

Key metrics of BCORP’s existing assets


Key metrics of Reliance Cement assets


Consolidated key metrics – Increased scale of operations + Pick up in prices in North = 4x jump in FY18 EBITDA over FY16

Birla corp FY16 FY17E FY18E FY19E FY20E

Capacity 9.8 10.1 10.1 10.1 10.1

Volumes in mt 8.0 8.7 9.1 9.6 10.0

% growth 6% 8% 5% 5% 5%

Utilisations % 85% 87% 91% 95% 100%

Realisations/t 3,618 3,836 4,027 4,229 4,440

% growth -6% 6% 5% 5% 5%

EBITDA/t 293 575 678 763 853

% growth -9% 96% 18% 13% 12%

EBITDA in mn 2,355 4,991 6,174 7,303 8,574

Reliance cements FY16 FY17E FY18E FY19E FY20E

Capacity 5.6 5.6 5.6 5.6 5.6

Volumes in mt 3.3 3.6 3.9 4.2 4.6

% growth 100% 10% 8% 8% 8%

Utilisations % 59% 65% 70% 76% 82%

Realisations/t 4,434 4,523 4,749 4,986 5,236

% growth 53% 2% 5% 5% 5%

EBITDA/t 749 801 916 1,038 1,169

% growth 804% 7% 14% 13% 13%

EBITDA in mn 2,473 2,908 3,589 4,395 5,345

Consolidated FY17E FY18E FY19E FY20E

Capacity 15.6 15.6 15.6 15.6

Volumes in mt 10.5 13.0 13.8 14.6

% growth 31% 24% 6% 6%

Utilisations % 67% 83% 88% 94%

Realisations/t 4,272 4,500 4,702 4,917

% growth 18% 5% 5% 5%

EBITDA/t 614 749 848 952

% growth 110% 22% 13% 12%

EBITDA in mn 6,445 9,764 11,698 13,919

Consolidated key metrics (BCORP existing + Reliance Cement)


Page 13

Birla Corporation

FY16 – FY20E – RoE and RoCE profile


FY16 -FY20E – Interest coverage ratio


Near term leverage not a worry; Net debt to equity to trend down…


… led by operating and free cash flow generation


While balance sheet leverage will increase significantly in FY17, expect de-leveraging process to be quicker as well

Page 14

-5

43 40 38 35

(0.19)

1.46

1.27 1.06

0.84

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

-10

0

10

20

30

40

50

FY16 FY17E FY18E FY19E FY20E

Net debt (Rs bn) Net debt to equity %

3.7x

2.7x 2.2x

2.9x

3.8x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0


EBIT interest coverage ratio %

6%

9% 11%

14%

17% 6%

8% 8%

10%

11%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


RoE % RoCE%

2,4

46

4,5

93

9,4

17

10,2

45

11,8

56

1,5

57

2,9

48

2,9

95

3,8

45

-10,000

-5,000

0

5,000

10,000

15,000


Operating cash flows (Rs. mn) Free cash flows (Rs mn)

Birla Corporation

Valuation Summary for mid-cap cement companies

Company Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) FY17-FY19E CAGR

FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E Revenue EBITDA PAT

BCORP 32,252 44,825 58,645 64,902 2,355 6,445 9,764 11,698 1,574 2,669 3,217 4,621 20.4 34.7 41.8 60.0 20.3% 34.7% 32.0%

DBL 64,380 79,527 91,768 100,846 15,786 20,078 23,130 25,750 1,908 3,847 6,078 7,801 21.5 43.3 68.4 87.8 12.6% 13.2% 42.4%

ICEM 42,268 46,516 52,460 59,191 7,697 9,299 10,261 11,842 1,378 2,841 3,768 4,934 4.5 9.2 12.3 16.1 12.8% 12.8% 31.8%

TRCL 35,958 40,121 45,378 49,935 10,590 12,051 13,347 14,075 5,583 6,549 7,914 7,420 23.4 27.5 33.2 31.2 11.6% 8.1% 6.4%

ORCMNT 15,092 19,450 23,534 27,182 1,834 2,847 4,812 6,045 622 450 1,864 2,753 3.0 2.2 9.1 13.4 18.2% 45.7% 147.5%

JKLC 26,199 30,630 36,650 43,037 2,701 4,916 7,557 9,362 63 1,229 3,099 4,644 0.5 10.4 26.3 39.5 18.5% 38.0% 94.4%

Company

EBITDA margins % EBITDA/t (Rs/t) RoCE RoAE Net Debt to Equity (x)

FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E

BCORP 7.3% 14.4% 16.6% 18.0% 293 614 749 848 6.4% 7.5% 8.1% 9.5% 5.9% 9.5% 10.6% 13.7% -0.2 1.5 1.3 1.1

DBL 24.5% 25.2% 25.2% 25.5% 1,186 1,224 1,284 1,364 4.4% 6.9% 8.3% 9.3% 5.5% 9.5% 13.5% 15.0% 1.6 1.3 1.1 0.8

ICEM 18.2% 20.0% 19.6% 20.0% 854 918 925 976 6.2% 7.9% 8.9% 10.1% 3.8% 7.6% 9.4% 11.2% 0.9 0.7 0.6 0.4

TRCL 29.5% 30.0% 29.4% 28.2% 1,428 1,415 1,426 1,393 13.2% 14.1% 16.0% 14.0% 19.5% 19.4% 19.7% 15.9% 0.7 0.4 0.2 0.1

ORCMNT 12.1% 14.6% 20.4% 22.2% 415 490 753 860 5.4% 6.5% 11.0% 13.6% 6.2% 4.4% 16.9% 21.4% 1.2 1.3 1.1 0.8

JKLC 10.3% 16.1% 20.6% 21.8% 369 601 821 899 -0.9% 8.1% 13.2% 16.3% 0.5% 8.9% 19.8% 24.1% 1.3 1.2 0.8 0.5

Company CMP Shares MCAP EV/EBITDA (x) EV/t (Rs/t) PE (x)

Rs. mn Rs. mn FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E

BCORP 640 77 49,286 18.5x 14.1x 9.1x 7.4x 4,646 6,788 6,361 6,057 31.3x 18.5x 15.3x 10.7x

DBL 1,734 89 153,979 14.7x 11.4x 9.6x 7.7x 10,023 9,400 9,110 9,301 80.7x 40.0x 25.3x 18.0x

ICEM 150 307 46,088 9.7x 7.7x 6.7x 5.5x 5,285 5,036 4,838 4,564 33.4x 16.2x 12.2x 9.3x

TRCL 595 238 141,656 14.9x 12.6x 10.9x 10.1x 11,689 11,262 10,780 8,644 25.4x 21.6x 17.9x 19.1x

ORCMNT 205 205 41,998 28.4x 19.4x 11.4x 8.9x 6,516 6,899 6,878 6,709 67.5x 93.4x 22.5x 15.3x

JKLC 470 118 55,319 24.5x 14.2x 9.0x 6.9x 7,816 7,104 6,002 6,015 880.9x 45.0x 17.9x 11.9x

Page 15

Birla Corporation

Complete chronology of events pertaining to Chanderia mining ban

Date Events

August 2011 Jodhpur High Court based on the PIL filed directed Birla Corp that no mining should take place in the mining leases within 10km radius

from the Chittorgarh Fort

October 2011 Mining operations got suspended from September 2011. First round of hearing happened on October 13, 2011 and the case got

adjourned to December 2011

December 2011 Court gave partial relief by allowing the company to remove 70000MT of already excavated limestone. Directed Indian Bureau of mines

to conduct inspection

April 2012 Based on the High Court order, permission was given to lift 1.85 lakh tonnes of limestone, blasted during a study conducted by the Indian

Bureau of Mines, as per the directions of the Court. However, in compliance with the Court’s order, mining operations continue to be

suspended

May 2012 Based on the judgment and order dated May 25, 2012 passed by the High Court at Jodhpur, the Court has inter alia directed that no

mining activities and blasting shall take place within 10 kms from Chittorgarh fort wall. It has further directed that the mining leases

granted within 10 kms from fort wall are cancelled. In terms of the aforesaid judgment and order, no mining and blasting operation could

be carried out within 10 kms from the fort wall. It may be noted that the mining and blasting operation at Chanderia unit remain

suspended since August, 2011 in terms of the directions of the High Court. Birla Corp decided to appeal the same with Supreme Court

January 2013 An interim order to allow mining operations without blasting was allowed by the Supreme Court and they nominated Central Building

Research Institute to conduct a study and evaluate the impact of mining without blasting operations i.e. mining with any kind of manual or

electric gadgets, on Chittorgarh fort. In the meanwhile, the petitioners have been permitted to carry out mining operations manually,

without use of any kind of heavy equipment

March 2013 Further to the submission of CBRI report, Supreme Court vide its Order dated 8th March 2013, was pleased to permit mining activities

with mechanical means without blasting for a period of 4 (four) weeks, i.e. from 18th March 2013 to 14th April 20L3, beyond 1 Km. of

Chittorgarh Fort Wall. Such mining activity would be carried out to enable Central Building Research Institute, Roorkie, to study the

cumulative impact of the entire mining activities on Chittorgarh fort and to submit a report to the Supreme Court. Further hearing in the

matter will take place after the above report is submitted

August 2013 After considering the report submitted by CBRI as well as the reply filed by Archaeological Survey of India (ASI), the Supreme Court

passed an interim order dated July 29, 2013 allowing mining operations beyond 2 kms from the Chittorgarh fort by using Heavy Earth

Moving Machinery (HEMM). The working mining area of the Company is located at a distance of 4.5 km from fort. Accordingly, pursuant

to the said Order, mechanical mining of limestone has been commenced by the Chanderia Unit. Further, as recommended by CBRI,

proposal would be submitted to Supreme Court for long term study of the impact of full scale mining operations on the fort to be taken up

independently

Page 16

Birla Corporation

Chronology of the Birla family vs. Lodha case

1982

M.P. Birla and his wife Priyamvada Birla executed a

‘mutual will’ wherein the entire property would go to

a charitable trust G.P. Birla (first cousin of M.P.

Birla), Kashinath Tapuria (brother of Priyamvada

Birla) and Pradip Khaitan were executors of this

said ‘will’ (which was not registered)

1999

Priyamvada Birla executed

another ‘will’ which was

registered, transferring all the

properties in the name of R.S.

Lodha after her death

1990

MP Birla dies. Priyamvada takes

control of the company with R.S.

Lodha assisting her

2004 – October

The Kolkata High Court has

quashed a petition filed by RS

Lodha and his associates

seeking dismissal of the criminal

case filed by the Birla family

against them

2011

In Feb, CLB dismissed petitions

filed by Birla family to remove

Harsh V. Lodha as the Chairman

and director with immediate

effect

2004 – July

Priyamvada dies. R.S. Lodha

claims the ownership as per the

1999 will Birlas file caveats in the

probate section of the District

Judges Court in Kolkata and

Calcutta High Court

2008

R.S Lodha died and his son, Mr.

Harsh V. Lodha took charge as

the Chairman of the Company

Note: We noticed Amarchand Mangaldas is representing Birla Trust and FML (Fox Mandal Little) is representing Lodhas

Key points as to how Birla Corp fared under Lodha management since FY08

Total Cement Capacity has increased from 5.8MT to 9.3MT

Company remains debt-free with net cash of Rs.5.5bn (19% of market cap)

Captive power plants and small Waste Heat Recovery plants have been added

Pet coke usage has gone up to 50% now from Nil

Page 17

Birla Corporation

Financial Summary

Page 18


Rs. 640

Target

Rs. 765

Rating

BUY

Birla Corporation

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Absolute Rating Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year horizon

REDUCE Stock expected to provide returns of <5% – -10% over a 1-year horizon

SELL Stock expected to fall >10% over a 1-year horizon

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0

200

400

600

800

Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16

Rs.

Price Target

Report Date Price Target Reco.

24/Nov/15 455 500 Buy

28/Aug/15 460 600 Buy

17/Jun/15 408 455 Buy

16/Mar/15 430 500 Buy

08/Aug/14 450 605 Buy

11/Jun/14 350 500 Buy

21/Mar/14 268 300 Buy

12/Dec/13 252 305 Buy

01/Nov/13 225 275 Buy

Page 19


Rs. 640

Target

Rs. 765

Rating

BUY

Birla Corporation

Disclaimer (Cont’d)

This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would

endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or

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incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Disclosure of Interest Statement BCORP

Analyst financial interest in the company No

Group/directors ownership of the subject company covered No

Investment banking relationship with the company covered No

Spark Capital’s ownership/any other financial interest in the company covered No

Associates of Spark Capital’s ownership more than 1% in the company covered No

Any other material conflict of interest at the time of publishing the research report No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:

Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

Products or services other than those above

In connection with research report

No

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Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No

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Page 20

Documents

Birla Corporation CMP - Spark Capitalmailers.sparkcapital.in/uploads/Girish/Birla corp_Aug 2016.pdf · Birla Corporation Company Overview – 56% of capacity in Central region BCORP’s