Birla Corp Fundamental Analysis and Future Outlook

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Birla Corp Fundamental Analysis and Future Outlook

Birla Corporation Limited is the flagship Company of the M.P. Birla Group. It was incorporated as Birla Jute Manufacturing Company Limited in 1919. The Company had a turnover of INR 6,915.69 crores in 2019-20 and a net profit of INR 505.18 crores. It operates in Cement, Jute and Iron and Steel casting business.

The company’s shares have 52 weeks price band of INR 807-389 and a total market capitalization of INR 32 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 7.34 and a dividend yield of 1.79%

Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 parameters and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The parameters are as follows.
1. Economic Moat
2. Business Model and Management
3. Growth Ratios
4. Profitability Ratios
5. Cash Flow Ratios
6. Liquidity and Solvency Ratios
7.Efficiency Ratios
8. Valuation Ratios
9. ROE (Du Pont Analysis)
10. Future Prospects
(All units are INR Millions except ratios and per share data)

You can get the complete excel model used for this analysis from below:

1.Economic Moat (★ ★ ★ ★ ☆)

The cement business does not have a highly distinguished product, so operational efficiency gives price dominance in the market. The cement manufacturing process is such that the cost of electricity and transport comes to around 35% of the total cost. The Cement Division of Birla Corporation Limited has 10 plants at seven locations, Satna & Maihar (Madhya Pradesh), Raebareli & Kundanganj (Uttar Pradesh), Chanderia (Rajasthan), Butibori (Maharashtra) and Durgapur (West Bengal).

The Jute Division is a leading exporter of Jute Products to the demanding markets of the European Community, USA, Japan and others, Birla Corporation Limited has been acknowledged in these countries for its ability to anticipate buyers’ requirements, fulfil expectations and develop technically superior products. The company has a manufacturing capacity of more than 120 tonnes of a variety of jute products in its Birla Jute Mills. This overall gives a good economic moat to the company. Therefore this category gets 4 stars in Birla Corp fundamental analysis.

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2. Business Model and Management (★ ★ ★ ☆ ☆)

The Company is primarily engaged in the manufacturing of cement as its core business activity. It has a significant presence in the jute goods industry as well. It has also has acquired 100% shares of Reliance Cement Company Private Limited (Reliance Cement), a subsidiary of Reliance Infrastructure Limited (RIL). After this acquisition, Reliance Cement has become a wholly-owned material subsidiary of Birla Corporation Limited. The entire cement business of RIL has been acquired for an Enterprise Value of INR 4,800 crores. This acquisition provides Birla Corporation Limited with the ownership of high-quality assets, taking its total capacity from 10 MTPA to 15.5 MTPA.

The company mostly manufactures varieties of cement-like Ordinary Portland Cement (OPC), 43 & 53 grades, Portland Pozzolana Cement (PPC), fly ash-based PPC, Low Alkali Portland Cement, Portland Slag Cement (PSC), Low Heat Cement and Sulphate Resistant Cement. In Jute, the product range comprises almost every major application including- the most versatile, eco-friendly, bio-degradable fibre available, durable, natural, anti-static.

Mr Pracheta Majumdar is the Whole-time Director and Chief Executive Officer of the company. He was formerly Managing Director of CEAT Tyres and worked with Hindustan Unilever Limited for about 12 years. Mr Aditya Saraogi is the Chief Financial Officer of the company and has worked previously at several large companies, including ITC, Bharti Airtel, Lafarge India, Peerless, iGate and Reliance Communications. This overall shows that the business model is not focused on core growth and management also do not have domain expertise in the business. This overall gives a good economic moat to the company. Therefore this category gets 3 stars in Birla Corp fundamental analysis.

Birla Corp Fundamental Analysis and Future Outlook
3. Growth Ratios (★ ★   )

The revenue has shown a double-digit stable growth rate over the last 10 years. The operating and Net income has also shown good improvement over the years. The capital expenditure has also been stable and the working capital has also been positive. This overall shows good growth for the company in the past as well as in the coming years. Therefore this category gets 5 stars in Birla Corp fundamental analysis.

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Birla Corp Fundamental Analysis and Future Outlook
4. Profitability Ratios (★ ★ ★ ☆ ☆)

The profitability margins of the company have seen a decline even with the increased scale of operations and depreciation. This is because of the lower asset utilization and commodity price fluctuations. The margins have declined over the years and there is no indicator of any significant improvement in the near future. Therefore this category gets 3 stars in Birla Corp fundamental analysis.

5. Cash Flow Ratios (★ ★  ☆ ☆)

Both the Net Income and Capital expenditure has shown a decline in recent years. This indicates weak growth prospects. The Free cash flow has remained positive and the operating cash flow growth has shown a nominal decline. Overall the company has seen a slight deterioration of its cash position. Therefore this category gets 3 stars in Birla Corp fundamental analysis.

6.Liquidity and Solvency Ratios (★ ★  ☆ ☆)

The current ratio has shown some decline in recent years and is still above the minimum requirement of 1. This shows the company has a surplus of current assets over current liabilities. The financial leverage and debt to equity have increased over the years and the profitability margins have declined. This reduces the solvency of the company. Therefore this category gets 3 stars in Birla Corp fundamental analysis.

Birla Corp Fundamental Analysis and Future Outlook
7. Efficiency Ratios (★ ★   ☆)

The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.

Birla Corp Shares Fundamental analysis
Birla Corp Fundamental Analysis and Future Outlook

Overall the efficiency has shown significant improvement over recent years. The payables period has gone up significantly from 39 days to 68 days. This shows increasing power over its suppliers. The receivables period has gone up slightly and days inventory has also decreased from 122 days to 88 days. However, the company has not managed to achieve a negative cash conversion cycle. Therefore this category gets 4 stars in Birla Corp fundamental analysis.

Birla Corp Fundamental Analysis and Future Outlook
8. Valuation Ratios (★ ★ ☆ ☆ ☆)

The company has shown declining valuation, this means the market has started pricing their shares at lower price multiples. This is because of declining profitability and slow expansion. Birla Corp has also shown mediocre growth prospects in the coming years without any new product offerings or new projects for significant capacity expansion. Therefore this category gets 2 stars in Birla Corp fundamental analysis.

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9. ROE 5 way Du Pont Analysis (★ ★ ☆ ☆ ☆)

The leverage ratio has increased over the years due to acquisitions. This shows an increase in debt financing for expansion. The company has also shown declining profitability. The operating margin has also reduced along with the interest burden ratio. The tax efficiency has also seen improvement. Overall this has made the ROE decline over the years. Therefore this category gets 2 stars in Birla Corp fundamental analysis.

10. Future Prospects (★ ★  ☆ ☆)

Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.

  • The firm remains focused on premium and blended cement. Sales of its premium slag brand named MP Birla Cement Unique continues to grow by 18% YoY.
  • Among the new product launches, the premium Ultimate Ultra brand has been received well in Madhya Pradesh, while Samrat Advanced gained traction in the key markets of Uttar Pradesh. These brands can drive profitability in the near future.
  • The management and Board have approved buyback of secured Non-Convertible Debentures in order to bring down borrowing cost. This can help revive the net income for the company in the near future.
  • The company can witness the loss of market share both in cement and jute due to increased competition and disrupted supply chains amidst the pandemic.

The company has shown some indicators of moderate upcoming growth. The management has also taken a few steps to improve the financial position of the company. Therefore this category gets 3 stars in Birla Corp fundamental analysis.

The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.

Overall Fundamental Rating:

BIRLA CORP SHARES (3.2/5)

Therefore it is a 3-star stock

★ ★ ★

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Summary of the Analysis
Economic Moat ★ ★ ★ ★ ☆
Business & Management ★ ★ ★ ☆ ☆
Growth Ratios ★ ★ ★ ★ ★
Profitability Ratios ★ ★ ★ ☆ ☆
Cash Flow Ratios ★ ★ ★ ☆ ☆
Liquidity & Solvency ★ ★ ★ ☆ ☆
Efficiency Ratios ★ ★ ★ ★ ☆
Valuation Ratios ★ ★ ☆ ☆ ☆
ROE (Du Pont Analysis) ★ ★ ☆ ☆ ☆
Future Prospects ★ ★ ★ ☆ ☆
Overall Fundamental Rating ★ ★
Birla Corp Shares Fundamental Analysis

You can read more about the company on its website!
Investor Presentation.
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