Buy Birla Corporation - A C Choksi

Massive capacity expansion plans to boost the cement business.

The company has lined up aggressive capex plans in projects undertaken to enhance its capacity to 10.8 mtpa by FY14E. The company has implemented 1.2 mtpa brownfield cement capacity expansion project at Chanderia. It is also in the process of commissioning 0.7 mtpa expansion project at Durgapur.

Exposure to structurally sound and diverse geographies

Birla Corp caters to the Central(43%), Northern(38%) and Eastern (19%) regions of the country. Rajasthan and Madhya Pradesh are the top two markets for BCL, contributing ~69% of the company's total volumes. Exposure in high growth Eastern markets to augurwell for the company.

Valuation at reasonable level post its under performance since its Ban on limestone mining operations at Chanderiya since August 2011.

Birla corporation has been underperforming its peers since the working of its Chanderia unit has been hampered as the mining operation for limestone at the plant was suspended on 20th August 2011. It has to procure limestone and clinker from the market to maintain its market share at a higher cost, which will reduce its profitability. We believe that the pessimism over the stock offers an opportunity to enter the stock at current levels. However it has a risk element involved as its other businesses are also facing difficulties, primarily Jute business which is plagued with suspension. We initiate coverage with a BUY Rating on Birla Corporation with a target price of Rs.305, valuing it using EV/Tonne Method.

Source : Equity Bulls

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