Motilal Oswal
Birla Corp (Buy)
CMP: ₹466.25
Target: ₹569
Birla Corporation (BCorp), established in 1919, is part of the MP Birla group. It manufactures cement, jute products, synthetic viscose and cotton yarn. Cement constitutes about 85 per cent of its revenue.
It has cement plants in Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal. Cement constitutes about 85 per cent of its revenue.
BCorp has entered into an ₹5,000-crore deal with Lafarge India to acquire a) plants at Sonadih (Chhattisgarh) and Jojobera (Jharkhand) with a cumulative capacity of 5.15 mt; b) two premium brands Concreto and PSC; and c) an excellent management team. BCorp management expects that the strong ready mix linkage, distribution network and adequate limestone reserve will offer sustainability of operations. The deal is likely to reach conclusive stage by December. The deal is the second-largest cement M&A in the past five years.
Rich valuations factor in superior asset quality, which enjoys industry leading profitability (₹1,500-1,600/tonne according to industry sources) — driven by the premium Lafarge brands that get ₹15-20/bag pricing premium compared to other Tier 1 brands in the eastern market.