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Birla Corporation Ltd.
Date: 22nd
November 2017
Target: Rs.1600 Long-Term Horizon: 3-5 Years
Company Profile
Birla Corporation (BCL), a flagship company of
M P Birla Group, was incorporated in 1919 by
Madhav Prasadji as Birla Jute Manufacturing
Company. Later, it steadily grew in a
multi-product corporation. The Company
crossed the Rs. 1300 - crore turnover mark and
the name was changed to Birla Corporation in
1998. Today, the main business of the
company is Cement manufacturing.
Brief History
 During the company’s multi-product stage,
besides cement and jute division, the
company had delved into the auto-trim
division, vinoleum division and steel
foundry division. Since the auto-trim
division and vinoleum division were less
profitable, they were officially shut down by
the year 2016.
 The company has a limestone mine at
Chanderia, Rajasthan, which is 4.5 kms
away from Chittorgarh Fort. On 20th
August,
2011, High Court of Rajasthan passed an
order to halt all mining activities within 10
kms area of Chittorgarh Fort. Currently,
mining activitiy has begun at Chanderia
mine but by mechanical means (initally the
mining was done through blasting).
Plant Location
 The company has cement plants in West
Bengal, Madhya Pradesh, Haryana,
Rajasthan, Maharashtra, Uttar Pradesh.
 In the acquisition of Reliance Cement Co.
Pvt. Ltd., the company acquired 3 plants of
RCCPL at Madhya Pradesh, Uttar Pradesh
and Maharashtra.
Birla Corporation Ltd.
Date: 22nd
November 2017
Cement Industry: A Brief Understanding
 Cement is basically made by heating
limestone with small quantity of other
materials to 1450℃ in a kiln. The resultant
hard material which is recovered after heating
limestone and chemicals is called ‘clinker’.
 Clinker is crushed with a small amount of
gypsum into a powder form, which gives the
final product, called ‘OPC Cement’.
 Limestone can be substituted with other
materials namely Flyash or Slag, which will
provide the strength but to a lesser extent.
 The threshold limit of mixing Flyash is
maximum 33%.
 Flyash is a by-product of Thermal Power
Production.
 Slag is a by-product of steel making process.
 Cement has a dynamic pricing market as the
sales price is determined based on demand &
supply.
 Cement, being a bulky material, occupies a
lot of weight, hence higher the distance a
cement bag travels, higher is the freight &
handling cost and lower is the manufacturer’s
margin.
Basic Company Data
 The company has a total capacity of 15.5
MTPA.
 In the year 2017, the company’s capacity
utilization was 10.13 MTPA i.e. 65% (incl. of
RCCPL capacity).
 The company’s revenue has been growing at
a CAGR of 10.8% for last 5 years and the
EBITDA has been growing at a CAGR of
8%.
 Current EBITDA margin is 10.18% and
current PAT margin is 4.41%.
Birla Corporation Ltd.
Date: 22nd
November 2017
Company Specifics
 The company has acquired Reliance Cement
Company Private Limited.
 Birla Corporation Ltd. has acquired 100% equity
shares of RCCPL. RCCPL is now a wholly-owned
subsidiary of Birla Corp. Ltd. The acquisition was
completed for an enterprise value of Rs. 4,800 crore.
The acquisition was funded through existing cash
reserves and incremental debt.
 Due to the acquisition, the company gained access to
3 new cement plants, which increased their current
capacity from 10 MTPA to 15.5 MTPA.
Jute Division
 Jute Industry is mainly concentrated in West Bengal.
 Government orders account for about 70% of its annual production.
 Jute Packaging material Act, 1987, decided to reduce compulsory use of Jute bags for
packaging of food grains each year by 5% so as to reach 50% norms by 2024-2025,
which has results in loss of demand.
 Duty free imports from Bangladesh & Nepal
have been a constant threat to jute industry.
However, Anti-Dumping Duty was imposed
on jute products originating from these
countries w.e.f. 5th
January, 2017.
 The increase in cost of jute bags has further
widened the gap between prices of synthetic
bags and jute bags. If this trend continues,
there is a strong concern that packing of
many more commodities will shift to
synthetic packaging material.
Growth Opportunities: Our View
1) 100 Smart Cities Project: Government of
India has launched the 100 smart cities and
rejuvenation of 500 cities plan. The major
benefit of this plan will be observed in Central
and South India. The company is well positioned
to partake into this plan. Till now, the
government has finalized only 90 cities to be
included in this plan.
(Note: This map only includes projects in states where the
company already has plants.)
Birla Corporation Ltd.
Date: 22nd
November 2017
2) Acquisition of RCCPL: It is a huge capacity and margin booster. The company, with
this acquisition, is strengthening it’s base in Central India. This acquisition has lead to
capacity expansion for the company. Also, the company gained access to RCCPL mines.
3) Mukutban Mines: The company has a mining lease at Mukutban, Maharashtra. The
company plans to install a project of Rs. 2,400 crore near Mukutban mines, which will
increase the capacity from 15.5 MTPA to 20 MTPA in 4 years.
4) Blended Cement: The company has higher production of blended cement (i.e. PPC and
PSC) as compared to OPC. Blended Cement has a higher margin than OPC. Since the
company has it’s own thermal power plant unit and has also set up a Flyash Silo, the
production of blended cement should provide better margins.
Risks: Our View
1) Pet-Coke Prices: Pet-Coke prices have doubled since last March 2016 from $48 to
$85-$90. Pet-Coke is usually used as an alternative as coal and considered to be less
expensive. Currently Pet-Coke prices are higher than coal.
2) Gypsum: Gypsum is one of the key raw materials used to prepare cement. Natural
Gypsum is scarcely available in India in commercial form. Birla Corp. is importing
gypsum or buying at high prices.
Triggers: Watch out!
1) Low Cost: Due to the company’s undeterred efforts to lower their power and fuel cost
and the new power plants that the company has been establishing should improve the
bottom line in the coming years.
2) Gypsum: Many companies have already shifted to the alternative of synthetic gypsum
as it is less costlier than natural gypsum as it can only be extracted through mines. So even
though the company is managing their purchasing of natural gypsum, in future the are
likely to shift to other alternatives due to lack of availability of quality gypsum.
Inc. Statement Figures (Rs. in Crore) Key Ratios
Birla Corporation Ltd.
Date: 22nd
November 2017
Valuations
 Current ROE(%) is 7.05 and ROCE(%)
is 8.62.
 EV/Ton is Rs. 950.69 and EBITDA/Ton
is Rs. 75.95.
 With the expansion of capacity due to
the mining lease of Mukutban, we expect
the capacity to expand to 20 MTPA
within the next 5 years.
 Assuming that the capacity would
increase by 15% from the current
capacity, we estimate an increase in
earnings by approx 27% by the year
2022.
 All-in-all there could be a upside of
approx 8% to 10% if bought at the
current market price.
 Due to acquisition of RCCPL through
debt and cash reserves, the company’s
current Debt/Equity ratio is 1.29.
Final View
We recommend our investors to “BUY” Birla Corporation Ltd. with a long-term horizon
of 3-5 years for a target of Rs. 1600.
Disclosure
Name: Jainam Wealth Email id: jainamwealth@gmail.com Ph. No.: 0261- 6725555
Analyst ownership of the stock: No
Analyst Certification: The Analyst certifies that the views expressed herein accurately reflect his (their)
personal view(s) about the subject security and issuer(s) and that no part of his (their) compensation was,
is or will be directly or indirectly related to the specific recommendation(s) or views contained in this
research report.
Disclaimer: Jainam Wealth offers independent equity research services to retail clients. SEBI (Research
Analysts) Regulations 2014, Registration No. INH000003218
This report is for the personal information of the authorized recipient and does not construe to be any
investment, legal or taxation advice to you. Jainam Wealth is not soliciting any action based upon it. This
document is provided for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision. The views expressed are those of analyst and the firm may or may not
subscribe to all the views expressed therein. The report is based upon information that we consider
reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such.
Jainam Wealth or any of its affiliates or employees shall not be in any way responsible for any loss or
Birla Corporation Ltd.
Date: 22nd
November 2017
damage that may arise to any person from any inadvertent error in the information contained in this report.
Neither the Firm, nor its employees, agents nor representatives shall be liable for any damages whether
direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise
from or in connection with the use of the information. Jainam Wealth or any of its affiliates or employees
do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining
to this report, including without limitation the implied warranties of merchantability, fitness for a
particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Jainam Wealth and/or its affiliates
and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this
report. Jainam Wealth has incorporated adequate disclosures in this document. This should, however, not
be treated as endorsement of the views expressed in the report.
Jainam Wealth has made an application with SEBI for registering as a Research Entity in terms of SEBI
(Research Analyst) Regulations, 2014. Jainam Wealth or its associates including its relatives/analyst do
not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst
as of the last day of the month preceding the publication of the research report. Jainam Wealth or its
associates/analyst has not received any compensation from the company/third party covered by Analyst
ever. Jainam Wealth/analyst has not served as an officer, director or employee of company covered by
Analyst and has not been engaged in market-making activity of the company covered by Analyst.
We submit that no material disciplinary action has been taken on Jainam Wealth by any regulatory
authority impacting Equity Research Analysis.
The views expressed are based solely on information available publicly and believed to be true. Investors
are advised to independently evaluate the market conditions/risks involved before making any investment
decision.

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Birla corporation limited

  • 1. Birla Corporation Ltd. Date: 22nd November 2017 Target: Rs.1600 Long-Term Horizon: 3-5 Years Company Profile Birla Corporation (BCL), a flagship company of M P Birla Group, was incorporated in 1919 by Madhav Prasadji as Birla Jute Manufacturing Company. Later, it steadily grew in a multi-product corporation. The Company crossed the Rs. 1300 - crore turnover mark and the name was changed to Birla Corporation in 1998. Today, the main business of the company is Cement manufacturing. Brief History  During the company’s multi-product stage, besides cement and jute division, the company had delved into the auto-trim division, vinoleum division and steel foundry division. Since the auto-trim division and vinoleum division were less profitable, they were officially shut down by the year 2016.  The company has a limestone mine at Chanderia, Rajasthan, which is 4.5 kms away from Chittorgarh Fort. On 20th August, 2011, High Court of Rajasthan passed an order to halt all mining activities within 10 kms area of Chittorgarh Fort. Currently, mining activitiy has begun at Chanderia mine but by mechanical means (initally the mining was done through blasting). Plant Location  The company has cement plants in West Bengal, Madhya Pradesh, Haryana, Rajasthan, Maharashtra, Uttar Pradesh.  In the acquisition of Reliance Cement Co. Pvt. Ltd., the company acquired 3 plants of RCCPL at Madhya Pradesh, Uttar Pradesh and Maharashtra.
  • 2. Birla Corporation Ltd. Date: 22nd November 2017 Cement Industry: A Brief Understanding  Cement is basically made by heating limestone with small quantity of other materials to 1450℃ in a kiln. The resultant hard material which is recovered after heating limestone and chemicals is called ‘clinker’.  Clinker is crushed with a small amount of gypsum into a powder form, which gives the final product, called ‘OPC Cement’.  Limestone can be substituted with other materials namely Flyash or Slag, which will provide the strength but to a lesser extent.  The threshold limit of mixing Flyash is maximum 33%.  Flyash is a by-product of Thermal Power Production.  Slag is a by-product of steel making process.  Cement has a dynamic pricing market as the sales price is determined based on demand & supply.  Cement, being a bulky material, occupies a lot of weight, hence higher the distance a cement bag travels, higher is the freight & handling cost and lower is the manufacturer’s margin. Basic Company Data  The company has a total capacity of 15.5 MTPA.  In the year 2017, the company’s capacity utilization was 10.13 MTPA i.e. 65% (incl. of RCCPL capacity).  The company’s revenue has been growing at a CAGR of 10.8% for last 5 years and the EBITDA has been growing at a CAGR of 8%.  Current EBITDA margin is 10.18% and current PAT margin is 4.41%.
  • 3. Birla Corporation Ltd. Date: 22nd November 2017 Company Specifics  The company has acquired Reliance Cement Company Private Limited.  Birla Corporation Ltd. has acquired 100% equity shares of RCCPL. RCCPL is now a wholly-owned subsidiary of Birla Corp. Ltd. The acquisition was completed for an enterprise value of Rs. 4,800 crore. The acquisition was funded through existing cash reserves and incremental debt.  Due to the acquisition, the company gained access to 3 new cement plants, which increased their current capacity from 10 MTPA to 15.5 MTPA. Jute Division  Jute Industry is mainly concentrated in West Bengal.  Government orders account for about 70% of its annual production.  Jute Packaging material Act, 1987, decided to reduce compulsory use of Jute bags for packaging of food grains each year by 5% so as to reach 50% norms by 2024-2025, which has results in loss of demand.  Duty free imports from Bangladesh & Nepal have been a constant threat to jute industry. However, Anti-Dumping Duty was imposed on jute products originating from these countries w.e.f. 5th January, 2017.  The increase in cost of jute bags has further widened the gap between prices of synthetic bags and jute bags. If this trend continues, there is a strong concern that packing of many more commodities will shift to synthetic packaging material. Growth Opportunities: Our View 1) 100 Smart Cities Project: Government of India has launched the 100 smart cities and rejuvenation of 500 cities plan. The major benefit of this plan will be observed in Central and South India. The company is well positioned to partake into this plan. Till now, the government has finalized only 90 cities to be included in this plan. (Note: This map only includes projects in states where the company already has plants.)
  • 4. Birla Corporation Ltd. Date: 22nd November 2017 2) Acquisition of RCCPL: It is a huge capacity and margin booster. The company, with this acquisition, is strengthening it’s base in Central India. This acquisition has lead to capacity expansion for the company. Also, the company gained access to RCCPL mines. 3) Mukutban Mines: The company has a mining lease at Mukutban, Maharashtra. The company plans to install a project of Rs. 2,400 crore near Mukutban mines, which will increase the capacity from 15.5 MTPA to 20 MTPA in 4 years. 4) Blended Cement: The company has higher production of blended cement (i.e. PPC and PSC) as compared to OPC. Blended Cement has a higher margin than OPC. Since the company has it’s own thermal power plant unit and has also set up a Flyash Silo, the production of blended cement should provide better margins. Risks: Our View 1) Pet-Coke Prices: Pet-Coke prices have doubled since last March 2016 from $48 to $85-$90. Pet-Coke is usually used as an alternative as coal and considered to be less expensive. Currently Pet-Coke prices are higher than coal. 2) Gypsum: Gypsum is one of the key raw materials used to prepare cement. Natural Gypsum is scarcely available in India in commercial form. Birla Corp. is importing gypsum or buying at high prices. Triggers: Watch out! 1) Low Cost: Due to the company’s undeterred efforts to lower their power and fuel cost and the new power plants that the company has been establishing should improve the bottom line in the coming years. 2) Gypsum: Many companies have already shifted to the alternative of synthetic gypsum as it is less costlier than natural gypsum as it can only be extracted through mines. So even though the company is managing their purchasing of natural gypsum, in future the are likely to shift to other alternatives due to lack of availability of quality gypsum. Inc. Statement Figures (Rs. in Crore) Key Ratios
  • 5. Birla Corporation Ltd. Date: 22nd November 2017 Valuations  Current ROE(%) is 7.05 and ROCE(%) is 8.62.  EV/Ton is Rs. 950.69 and EBITDA/Ton is Rs. 75.95.  With the expansion of capacity due to the mining lease of Mukutban, we expect the capacity to expand to 20 MTPA within the next 5 years.  Assuming that the capacity would increase by 15% from the current capacity, we estimate an increase in earnings by approx 27% by the year 2022.  All-in-all there could be a upside of approx 8% to 10% if bought at the current market price.  Due to acquisition of RCCPL through debt and cash reserves, the company’s current Debt/Equity ratio is 1.29. Final View We recommend our investors to “BUY” Birla Corporation Ltd. with a long-term horizon of 3-5 years for a target of Rs. 1600. Disclosure Name: Jainam Wealth Email id: jainamwealth@gmail.com Ph. No.: 0261- 6725555 Analyst ownership of the stock: No Analyst Certification: The Analyst certifies that the views expressed herein accurately reflect his (their) personal view(s) about the subject security and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer: Jainam Wealth offers independent equity research services to retail clients. SEBI (Research Analysts) Regulations 2014, Registration No. INH000003218 This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Jainam Wealth is not soliciting any action based upon it. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The views expressed are those of analyst and the firm may or may not subscribe to all the views expressed therein. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. Jainam Wealth or any of its affiliates or employees shall not be in any way responsible for any loss or
  • 6. Birla Corporation Ltd. Date: 22nd November 2017 damage that may arise to any person from any inadvertent error in the information contained in this report. Neither the Firm, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Jainam Wealth or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. Jainam Wealth and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Jainam Wealth has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report. Jainam Wealth has made an application with SEBI for registering as a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014. Jainam Wealth or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst as of the last day of the month preceding the publication of the research report. Jainam Wealth or its associates/analyst has not received any compensation from the company/third party covered by Analyst ever. Jainam Wealth/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market-making activity of the company covered by Analyst. We submit that no material disciplinary action has been taken on Jainam Wealth by any regulatory authority impacting Equity Research Analysis. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision.