Home > Finance > stock idea: After 89% jump in Q2 net; brokerages see 70% upside in this cement stock

stock idea: After 89% jump in Q2 net; brokerages see 70% upside in this cement stock

stock idea: After 89% jump in Q2 net; brokerages see 70% upside in this cement stock 2

Analysts have raised price targets for Birla Corporation after the company on Thursday posted 88.6 per cent year-on-year (YoY) growth in consolidated net profit at Rs 166.62 crore mainly on account of the company’s cost rationalisation initiatives and a better-than-expected recovery in cement demand.

Shares of the MP Birla Group’s flagship firm traded 5.62 per cent higher at Rs 679.65 in early trade on Friday, as Sensex traded 0.41 per cent higher at 41,511.

Brokerage YES Securities set a target price of Rs 1,108 on the stock post Q2 earnings. This indicates a 72 per cent upside from its previous close of Rs 643.

“Based on the exceptional performance during Q2FY21, we have upgraded our volume estimate by 8 per cent and Ebitda by 20 per cent for FY21E and factor in volume and Ebitda growth at 15 per cent and 9 per cent CAGR, respectively, over FY21E-FY23E. We expect the increase in net debt to be limited at around Rs 400 crore (bear case scenario) over FY20-FY23E with peak net debt/Ebitda of 2.74 times in FY21E, which should drop to 2.35 times by FY23E translating into balance sheet stability,” the brokerage said.

The company has 10 cement plants spread across the country, with an installed capacity of 15.5 mt, while its 3.9 mtpa cement plant will be commissioned at Mukutban, Maharashtra, by September 2021.

In view of the recovery seen over the past few months, Birla Corporation has decided to bring back on track its Rs 250 crore capacity expansion project at Kundanganj, which it had put on hold in May amid uncertainties over cement consumption.

“Amid continuing disruptions in the construction space due to the Covid-19 pandemic, recovery in cement demand in our key markets was better than expected,” the company said in a statement.

Elara Capital sees over 30 per cent upside in the stock with a revised price target of Rs 850 (Rs 782 earlier). The brokerage believes strong participation of retail, rural and individual house building (IHB) segments and higher government spend on infrastructure to support healthy demand in the company’s key markets in north, east and central India.

“Further, the completion of its ongoing expansion projects would ensure sustainable volume growth in the long run. Therefore, we reiterate a ‘buy’ rating on the stock and raise our earnings estimates by around 36 per cent for FY21E and 8 per cent for FY22E to factor in better-than-expected H1FY21 volume. We introduce FY23E and raise price target on EV per tonne of Rs 5,000 (unchanged) September 2022E,” Elara said.

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