BirlaCorp - InitiatingCoverage + ICICI

ICICI Securities Limited
Initiating Coverage
March 23, 2011
Rating Matrix
Rating : Buy Birla Corporation (BIRCOR)
Target : | 343
Target Period : 12-15 months | 309
Potential Upside : 11%
Nurturing capacities to drive growth…
Annual Performance (| Crores)
Birla Corporation (BCL), promoted by the MP Birla group, derives ~93%
| Crore FY09 FY10 FY11E FY12E FY13E of its total revenue from the cement segment and ~6% from the jute
Net Sales 1791 2157 2127 2583 3166 segment. The company is well placed in the high growth markets of
EBITDA 426 705 427 415 582 northern, central and eastern region where the high utilisation rates will
Net profit 324 557 322 234 349 enable the company to increase volumes and better realisations. BCL
Current & target multiple has increased its cement capacity by ~1.7 MTPA to reach 7.5 MTPA by
Q3FY11. Further expansion of 1.8 MTPA by Q2FY12E would increase its
FY09 FY10 FY11E FY12E FY13E
installed capacity to 9.3 MTPA. These expansions are expected to drive
EPS 42.0 72.4 41.8 30.4 45.4
its volume growth at ~12% CAGR in FY10-13E. We expect net sales to
P/E (x) 7.4 4.3 7.4 10.2 6.8
grow at ~14% CAGR (FY10-13E). The operating margin is expected to
EV/EBITDA (x) 4.2 2.3 4.8 5.5 3.3
improve in FY13E after facing pressure in FY11E and FY12E due to
P/BV (x) 1.8 1.3 1.2 1.1 0.9
better realisations. The company has a strong balance sheet and is
Target P/E (x) 8.2 4.7 8.2 11.3 7.6
expected to generate cash flow from operations of ~| 1400 crore in
Target EV/EBITDA (x) 7.2 4.1 7.8 8.5 5.5 FY10-13E with net cash of | 444 crore in FY13E (| 58 per share).
Target P/BV (x) 2.8 2.0 1.8 1.6 1.4
Capacity expansion to drive volume growth
Stock Data
BCL is expanding its clinker capacity by ~2 MTPA to ~6.3 MTPA by
Bloomberg Code BCORP IN FY12E through brown field expansions at Satna (MP) and Chanderiya,
Reuters Code ADYA.BO Rajasthan. Also, it is expanding its cement grinding capacity by ~3.5
Face Value (|) 10 MTPA to ~9.3 MTPA by FY12E. On the back of capacity expansions, we
Promoters Holding (%) 62.9 expect cement sales volumes to grow at ~12% CAGR during FY10-13E to
Market Cap (| Crore) 2379.6 7.8 MTPA in FY13E from 5.6 MTPA in FY10. Along with volume growth,
52 Week H/L 448 / 292 we believe the company’s presence in high growth regions like north,
Sensex 18206 central and east would help it to increase its realisations on account of
Average Volumes 3062 increasing utilisation rates in the regions.
Comparative return matrix (%) Strong balance sheet provides enough room to expand
1M 3M 6M 1 Yr On account of ~| 1300-crore expansion plans, we expect the company’s
Birla Corp -3.5 -10.1 -23.7 -16.6 debt-equity ratio to increase from 0.40 in FY10 to 0.51 in FY12E, which is
Heidelberg -2.8 -14.8 -25.5 -26.3 still at a very comfortable level. With a low debt-equity ratio, we feel the
JK Cement -4.6 -12.3 -21.6 -30.0 company would not find it difficult to go ahead with its expansion plans
JK Lakshmi 2.2 -16.6 -26.8 -38.8 despite the expected decline in its operating profit in FY11E and FY12E.
Mangalam 3.6 -15.5 -28.8 -36.4 Valuations
At the CMP of | 309, the stock is trading at EV/EBITDA of 5.5x and 3.3x
Price movement its FY12E and FY13E EBITDA, respectively. On a replacement cost basis,
7,000 500 BCL is trading at $54 per tonne and $46 per tonne its FY12E and FY13E
6,000 capacities, respectively. We value the cement business at $50/tonne to
400
5,000 its FY13E capacity of 9.3 MTPA, which is nearly a 58% discount to the
4,000 300 current replacement cost of $125/tonne. Hence, we are initiating
3,000
coverage on the stock with a BUY rating and target price of |343/share.
200 Exhibit 1: Valuation Metrics
2,000
100 | Crores FY08 FY09 FY10 FY11E FY12E FY13E
1,000
Net Sales 1724.8 1790.7 2157.0 2127.4 2583.0 3165.7
0 0 EBITDA 575.4 425.8 705.1 427.1 414.9 581.6
Apr-10 Jul-10 Sep-10 Dec-10 Mar-11 Net Profit 393.6 323.5 557.2 321.6 234.0 349.3
Price (R.H.S) Nifty (L.H.S) P/E (x) 6.0 7.4 4.3 7.4 10.2 6.8
Analyst’s name Target P/E (x) 6.7 8.2 4.7 8.2 11.3 7.6
EV/EBITDA (x) 3.5 4.2 2.3 4.8 5.5 3.3
Vijay Goel
vijay.goel@icicisecurities.com P/BV (x) 2.4 1.8 1.3 1.2 1.1 0.9
RoNW (%) 39.2 25.1 31.1 15.6 10.5 13.8
Rashesh Shah
rashes.shah@icicisecurities.com RoCE (%) 41.8 24.4 26.0 12.0 9.6 13.4
Hitesh Taunk Source: Company, ICICIdirect.com Research
hitesh.taunk@icicisecurities.com
ICICIdirect.com | Equity Research

Share holding pattern (Q3FY11) Company background

Shareholder Holding (%)
Birla Corporation Ltd (BCL), the flagship company of the MP Birla Group,
Promoters 62.9
was incorporated as Birla Jute Manufacturing Co Ltd in 1919. The
FIIs 7.61 company manufactures cement, jute products, auto trim parts, PVC
MFs 12.91 goods and iron & steel castings. Cement and jute are the major segments
Others 16.58 that contribute ~93% and ~6% to the total revenue of the company.
BCL has current installed cement capacity of 7.46 MTPA. The cement
Promoter and Institutional holding trend (%) plants of the company are located in the northern, central and eastern
regions. BCL has two integrated cement units (clinker and grinding),
located at Satna (Madhya Pradesh), Chanderiya (Rajasthan). Other
80 62.9 62.9 62.9 62.9 62.9 grinding units are located at Raebareli (Uttar Pradesh) and Durgapur
60 (West Bengal). The company sells cement under the brand names of
40 19.2 19.6 20.0 20.4 20.5 Samrat, Chetak and Khajuraho.
20
0 In the jute segment, it has installed capacity of 38,000 tonne and its plants
Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 are located in West Bengal. The company sells its jute products in the
northern, eastern and western markets.
Promoters FIIs & MFs
Exhibit 2: Products and capacities Exhibit 3: Cement units
Product Installed capacity Cement Plant locations Capacity (MTPA)

Cement 7.46 MTPA Satna (MP) 2.73
Jute goods 38000 tonnes Chanderia (RAJ) 2.50
PVC floor covering 48.60 lakh sq mtr Raebareli (UP) 0.63
Auto trim parts 7.80 lakh pcs Durgapur (WB) 1.60
Iron and steel casting 3750 tonne Total 7.46
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research
Exhibit 4: Plant Locations
Source: Company, ICICIdirect.com Research

Page 2
Investment Rationale
Birla Corporation is expected to post cement sales volume growth of
~12% CAGR during FY10-13E due to grinding capacity addition of ~3.5
MTPA during the period. The company has a presence in the high
growth markets of the northern, central and eastern region. We believe
it will enable BCL to increase volumes and better its realisations. Along
with strong volume growth, we expect cement realisations to increase
by 7% YoY in FY12E and 9% YoY in FY13E. We expect net sales to grow
at 14% CAGR during FY10-13E from | 2157 crore in FY10 to | 3165.7
crore in FY13E. We expect the EBITDA margin to decline in FY11E and
FY12E to ~20% and ~16%, respectively, from ~33% in FY10 on account
of rising costs and low realisations. However, the margin is expected to
improve in FY13E to 18% as better realisations would help to offset the
higher cost of production. Also, the company has a strong balance sheet
and is expected to generate cash flows from operations of ~| 1400
crore in FY10-13E with net cash of | 444 crore in FY13E.
Capacity expansion to drive volume growth

Birla Corporation has recently completed brownfield grinding expansions
of 1.18 MTPA and 0.5 MTPA at the Satna and Chanderiya units,
respectively, to reach cement capacity of 7.46 MTPA by Q3FY11. The
company is further expanding the grinding capacity by 1.2 MTPA at
Chanderiya and 0.6 MTPA at Durgapur. The Chanderiya and Durgapur
expansions are expected to be commissioned by Q2FY12E. After these
expansions, the total cement grinding capacity is expected to reach ~9.3
MTPA by FY12E.
Along with grinding capacity expansions, the company is expanding its
clinker capacity by ~2 MTPA of which 0.76 MTPA and 0.28 MTPA
capacities were commissioned in Q2FY11 at the existing Satna and
Chanderiya units, respectively. Another 0.8 MTPA clinker expansion is
expected to get commissioned by Q2FY12 at Chanderiya. After these
expansions, the total clinker capacity is expected to reach ~6.3 MTPA by
FY12E from the current clinker capacity of ~5.44 MTPA.
The company is expanding its clinker unit capacity at Exhibit 5: Capacity expansion schedule
Chanderiya by 0.8 MTPA to 3 MTPA. This will lead its overall
Million Tonnes
clinker capacity to 6.24 MTPA in FY12E. At the same time,
Clinker Capacity Location FY10 FY11E FY12E FY13E
the company is also expanding its grinding capacity by 1.2
Satna Madhya Pradesh 2.48 3.24 3.24 3.24
MTPA and 0.6 MTPA at its Chanderiya and Durgapur unit to
Chanderia Rajasthan 1.92 2.20 3.00 3.00
bring the total grinding capacity to ~9.3 MTPA
Total 4.40 5.44 6.24 6.24
Grinding Capacity Location FY10 FY11E FY12E FY13E

Satna Madhya Pradesh 1.55 2.73 2.73 2.73
Chanderia Rajasthan 2.00 2.50 3.70 3.70
Raebareli Uttar Pradesh 0.63 0.63 0.63 0.63
Durgapur-I West Bengal 0.60 0.60 1.20 1.20
Durgapur-II West Bengal 1.00 1.00 1.00 1.00
Total 5.78 7.46 9.26 9.26

Page 3
Sales volume to grow at ~12% CAGR during FY10-13E

On the back of capacity expansions, we expect cement sales volumes to
grow at ~12% CAGR during FY10-13E to 7.8 MTPA in FY13E from 5.6
MTPA in FY10. The volume is expected to increase by ~7% YoY in FY11E
to 6 MTPA while the major impact of capacity expansions will be seen in
FY12E. We expect volumes to grow by ~17% YoY in FY12E to 7 MTPA
and ~12% YoY in FY13E to 7.8 MTPA.
Exhibit 6: Capacity expansion to drive volumes
10.0 9.3 9.3

9.0
7.8
8.0 7.5
7.0
7.0
5.8 5.8 5.8 5.8 5.6 6.0
Million Tonnes
6.0 5.2 5.3 5.3
5.0
4.0
3.0
2.0
1.0
0.0
FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Cement Capacity Cement Volumes
Favourable market mix

The company is present in high growth regions with 35% exposure to the
northern region, 38% to the central region and 28% to the eastern region.
Post cement expansion projects, the company’s exposure to the northern
region will increase to 40%, while the contribution of the eastern and
central region will be 24% and 36%, respectively. We believe the
presence in these regions will benefit BCL due to improving capacity
utilisation rates and expectations of an improvement in cement prices.
Exhibit 7: Current regional exposure Exhibit 8: Regional exposure post expansion
North, East, 24%

East, 28%
35% North,
40%
Central, Central,
38% 36%
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Page 4
Exhibit 9: State wise cement dispatches in FY06 (%) Exhibit 10: State wise cement dispatches in FY10 (%)
Others, 14 Others, 9
Uttar Pradesh,
Uttar Pradesh, Delhi, 6
27
Delhi, 4 30
Haryana, 8
Haryana, 8
Madhya
Madhya Pradesh, 9
Pradesh, 6
Rajasthan, 14
Bihar, 8
Rajasthan, 18 Bihar, 13
West Bengal, West Bengal,
Source: Crisil ICICIdirect.com Research Source: Crisil, ICICIdirect.com Research
Northern region
We expect cement demand in the northern region to grow at a CAGR of
~7% during FY10-13E. Rajasthan, Punjab, Haryana and Delhi are the key
cement consuming states in this region. Going forward, also, we expect
these states to contribute significantly to overall cement demand in the
northern region. We expect the capacity utilisation rate to improve from
FY12E as consumption growth will outpace effective capacity addition.
Exhibit 11: Demand supply matrix of northern region
Million tonnes FY08 FY09 FY10 FY11E FY12E FY13E

Effective Capacity 35.5 47.8 49.6 61.7 63.7 65.7
Production 36.5 41.1 46.2 48.4 51.5 56.2
Capacity Utilisation (%) 103 86 93 78 81 86
Consumption 36.5 41.1 46.2 48.4 51.5 56.2
Consumption (%) 12.6 12.4 4.7 6.5 9.0
Surplus/Deficit -1.0 6.7 3.4 13.3 12.1 9.5
Source: CMIE, ICICIdirect.com Research
Demand in the northern region will be driven by housing projects in the

semi-urban and rural areas in Punjab and Haryana. Also, investments in
urban infra projects in cities like Delhi and Chandigarh and hydel power
projects in Himachal Pradesh are expected to boost cement demand.
Central region
We expect cement demand in the central region to grow at a CAGR of
~9% during FY10-13E. The central region is the most balanced region
considering the demand supply scenario. We expect the capacity
utilisation rate to remain above ~100% as incremental demand would
keep pace with addition of effective capacities.
Exhibit 12: Demand supply matrix of central region

Production 24.8 26.1 30.0 32.3 35.3 38.4
Consumption 24.5 25.7 30.0 32.3 35.3 38.4
Consumption (%) 4.9 16.7 7.8 9.0 9.0
Surplus/Deficit 0.6 1.8 -2.3 -1.2 -3.2 -1.3

Page 5
Uttar Pradesh (UP) and Madhya Pradesh (MP) are the major cement
consuming states in the region contributing ~70% and ~30% of the total
consumption in the central region, respectively. Lower per capita cement
consumption in MP and UP (137 kg/capita in MP and 104 kg/capita in UP)
indicates sustainable future growth in demand. Government housing
projects (rural and urban) and hydro power projects are the major
demand drivers in the region, backed by key government projects such as
Pradhan Mantri Gram Sadak Yojna, Bharat Nirman and Indira Awaas
Yojna.
Eastern region
We expect the cement demand in the eastern region to grow at a CAGR
of ~7% during FY10-13E. We expect the capacity utilisation rate to
improve to 89% in FY12E from 84% in FY11E.
Exhibit 13: Demand-supply matrix of eastern region

Production 23.2 26.0 29.5 31.1 33.3 36.3
Consumption 23.2 26.0 29.5 31.1 33.3 36.3
Consumption (%) 12.1 13.5 5.5 7.0 9.0
Surplus/Deficit 2.9 3.8 3.7 6.0 4.2 7.5
Demand in the eastern region will be driven by industrial projects in the

mineral resource-rich states such as Orissa, Jharkhand and Chhattisgarh.
Also, housing projects in the rural and semi-urban regions in Bihar and
West Bengal will drive the demand. Additionally, infrastructure projects
like power and various road projects will provide further impetus to
demand for cement in this region.
Cement prices expected to increase on improving utilisation rates

Cement prices across northern and eastern regions have seen a sharp
jump in the recent past on the back of growth in demand and supply cut
by major cement players. All-India average cement prices have corrected
by ~3% YoY in H1FY11 led by ~8% QoQ decline in Q2FY11 on account
of low consumption growth of 2-3% during the monsoon season. In
Q3FY11, the all-India average price has increased ~3% YoY led by
artificial price hikes in the southern region. Average cement prices in the
eastern and northern region were subdued in H1FY11 on lower demand
due to shortage of labour and long lasting monsoons against all-India
average cement price. In addition, cement prices in the central region
increased ~10% YoY against all-India average price increase of ~4% YoY
on account of better consumption growth compared to other regions. On
account of improving utilisation rates, we expect cement prices to
increase in the operative regions of the company. We have assumed the
company’s cement realisation will increase by 7% YoY in FY12E and 9%
in FY13E after ~9% decline in FY11E.

Page 6
Exhibit 14: Retail cement prices (|/50 kg bag)
285
265
245
225
205
185
165
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
West North East Central South All India Avearge
Source: Dealers, ICICIdirect.com Research
Strong balance sheet provides enough room to expand

We expect the company’s debt equity ratio to increase from 0.40 in FY10
to 0.51 in FY12E on account of ~| 1300-crore expansion plans, which is
still at a very comfortable level. With a low debt-equity ratio, we feel the
company would not find it difficult to go ahead with its expansion plans
despite the expected decline in its operating profit due to weak demand.
The company is expected to generate cash flow from operations of ~|
1400 crore in FY10-13E with net cash of | 444 crore in FY13E.
Exhibit 15: Free cash flow and D/E ratio
500 0.6
0.5 376.7
400
The free cash flow is expected to come to the positive zone 270.1 0.5
300 200.5
in FY13E to | 376.6 crore after completing the expansions 200 134.7 0.5
0.4
in FY11E and FY12E 100 0.3 0.4
| Crores
0.4
0 0.3
-100 FY08 FY09 FY10 FY11E FY12E FY13E
-200 0.2 0.2
-156.5
-300 0.1
-400
-500 -456.0 0.0
Free Cash flow D/E

Page 7
Assumptions
Cement Business
Exhibit 16: Assumptions for cement segment
FY08 FY09 FY10 FY11E FY12E FY13E

Installed Capacity (mtpa) 5.8 5.8 6.1 7.5 9.3 9.3
Production (mtpa) 5.3 5.3 5.7 6.0 7.0 7.8
Sales Volume (mtpa) 5.3 5.3 5.6 6.0 7.0 7.8
YoY (%) 0.7 0.5 5.2 7.0 17.1 12.3
Realisation (|/Tonne) 3011 3103 3605 3275 3516 3826
YoY (%) 10.1 3.0 16.2 -9.2 7.4 8.8
Net Sales (| Crores) 1586.0 1642.1 2006.5 1949.6 2451.0 2993.7
EBIT (| Crore) 568.0 422.0 602.4 345.0 317.5 469.4

EBIT Margin (%) 35.8 25.7 30.0 17.7 13.0 15.7
EBIT per tonne (|) 1078 797 1082 580 456 600
Exhibit 17: Cement realisation and EBIT per tonne
5000
3826
4000 3605 3516
3103 3275
3011
| per tonne
3000
2000
1078 1082
797
1000 580 456 600
0
Cement Realisation Cement EBIT per tonne
Jute Business
Exhibit 18: Assumptions for jute segment

Net Sales (| Crores) 116.8 128.9 130.0 167.5 120.0 160.0
EBIT (| Crores) -1.9 -9.6 9.9 5.02 3.6 6.4
EBIT Margin (%) -1.6 -7.4 7.6 3.0 3.0 4.0

Page 8
Risk & concerns

Delay in commissioning of capacities
Any delay in commissioning of cement grinding capacities may hamper
sales volume growth. Also, a delay in commissioning of clinker capacities
would lead to an increase in clinker purchase from outside.
Lower than expected realisation growth

We have done a sensitivity analysis of cement sales realisation wherein
we have factored in a 9% YoY decrease in realisation for FY11E while
factoring in 7% and 9% YoY growth in FY12E and FY13E, respectively, in
the same. This is on account of comparatively high growth and better
capacity utilisation rates in the central, northern and eastern regions
where the company sells ~38%, 35% and 28%, respectively, of its
volume currently. Any slowdown in demand could lead to a decline in
cement prices in the region and a decline in margins of the company.
Hence, we have done a sensitivity analysis to see the impact of an
increase or decrease in realisation on the earnings of the company.
Exhibit 19 shows the impact on EBITDA per tonne and EPS of the
company in FY11E, FY12E and FY13E under the following situations:
Exhibit 19: Sensitivity analysis on earnings with change in realisation

Change in Realisation in FY11E over FY10 keeping other variables constant
15% dec 12% dec Base case (9% dec) 5% dec 2% dec
FY11E Realisation (|/Tonne) 3064 3173 3275 3425 3533
EBITDA Margin (FY11E) 17.8 19 20.1 21.6 22.5
EBITDA Margin (FY12E) 5.5 11.5 16.1 21.3 24
EBITDA Margin (FY13E) 8.8 14.3 18.4 23.2 25.8
EPS (FY11E) 35 38.5 41.8 46.5 50
EPS (FY12E) 1.8 16.4 30.4 50.6 65.3
EPS (FY13E) 11.7 29 45.4 69.2 85.4

2.5% inc 5% inc Base case (7% inc) 10% inc 15% inc
EPS (FY12E) 24.4 27.6 30.4 33.7 39.6
EPS (FY13E) 38.4 42.1 45.4 49 56.2

2% inc 5% inc Base case (9% inc) 12% inc 15% inc
EPS (FY13E) 34.9 39.5 45.4 50.3 54.8

Page 9
Higher than expected increase in coal prices may hurt margins

Birla Corp meets ~60% of its coal requirement through domestic linkage
coal and ~40% through imported coal sources. In Q3FY11, the company
started using imported coal, which led to a significant increase in the
power & fuel cost of the company. The average coal price in FY10 was |
2822 per tonne for the company. We expect it to increase by ~29% YoY
in FY11E to | 3629 per tonne in FY11E due to a change in the coal mix.
Coal India Ltd, the largest domestic coal supplier, has hiked the price of
coal by around 30% with effect from February 27, 2011. Coal India has
implemented a differential pricing methodology for coal for market
driven sectors and regulated sectors. Coal prices for market driven
sectors have been hiked by ~30% while that for regulated sectors like
power utilities, fertiliser, IPPs and defence sectors have been kept
constant. The increase has been pegged with the floor level of the spot
e-auction prices of coal. The price of ‘A’ and ‘B’ grade of coal has been
linked with international coal prices and would be offered at a 15%
discount to the global spot price.
Exhibit 20: Domestic and international coal prices

200 Coal India has increased the domestic 4500
180 coal prices (Grade A) by ~150% from 4000
160 26 Feb 2011 to ~| 4000 per tonne 3500
140 3000
| per tonne
$ per tonne
120
2500
100
2000
80
60 1500
40 1000
20 500
0 0
Nov-08
Nov-09
Nov-10
Mar-08
May-08
Jul-08
Sep-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Jan-11
Mar-11
Australia - Newcastle
South Africa - Richards Bay (CV 6000)
Domestic Coal (Grade A)

Note: International coal prices are on FOB
Exhibit 21: Birla Corp’s change in coal mix impact on per tonne
Increase in proportion of imported
1200 coal led to increase in power & fuel
1003
cost 920 933
1000
768 774 806
800 687 708
665
| per tonne
633 611
600
400
200
0
Q1FY10
Q2FY10
Q3FY10
Q4FY10
FY10
Q1FY11
Q2FY11
Q3FY11
FY11E
FY12E
FY13E

Page 10
Exhibit 22: Sensitivity analysis on earnings with change in coal cost
Change in coal cost in FY11E over FY10 keeping other variables constant
We have performed a sensitivity analysis to assess the impact of CY11E Coal Cost (|/Tonne) 3104 3386 3629 3950 4232
coal prices on EBITDA margins and EPS of FY11E, FY12E and FY13E.
For FY11E, we have done a sensitivity analysis by assuming an
increase in average coal prices (used for raw meal and steam
EPS (FY11E) 43.5 42.6 41.8 40.7 39.7
turbine) by 10%, 20%, 30%, 40% and 50% on a YoY basis of which
EPS (FY12E) 38.3 34.0 30.4 25.6 21.3
30% YoY increase (| 3629 per tonne) is our base case and factored
EPS (FY13E) 55.1 49.9 45.4 39.4 34.1
in our model. Similarly, we have done the same exercise for FY12E
and FY13E. For this, we expect average coal prices to increase Change in coal cost in FY12E over FY11E keeping other variables constant
~34% and 11% YoY to | 4860 per tonne and | 5381 per tonne, 10% inc 25% inc Base case (34% inc) 40% inc 50% inc
respectively CY11E Coal Cost (|/Tonne) 3992 4537 4860 5081 5444
EPS (FY12E) 40.0 33.9 30.4 27.9 24
EPS (FY13E) 57.1 49.8 45.4 42.3 37.4
Change in coal cost in FY13E over FY12E keeping other variables constant
CY11E Coal Cost (|/Tonne) 4908 5103 5381 5589 5832
EPS (FY13E) 51.0 48.6 45.4 43.0 40.0

Page 11
Financials
Topline to grow at 14% CAGR in FY10-13E
We expect net sales to grow at 14% CAGR in FY10-13E from | 2157 crore
in FY10 to | 3165.7 crore in FY13E. The topline growth will be driven by
sales volume growth of 12% CAGR to 7.8 MT in FY13E from 5.6 MT in
FY10. We expect realisations to increase by 7% YoY in FY12E and 9%
YoY in FY13E on account of the company’s presence in the high growth
markets of the central region and to offset continuously rising input cost.
In addition, the contribution of the jute segment in total revenues is
expected to decline due to lower sales volume. However, this risk will be
mitigated by addition of cement and power capacity, going forward.
Exhibit 23: Net sales and YoY growth (%)
3600 3165.7 25
20
2583.0
2400 2157.0 2127.4 15
1790.7
| Crores
1724.8
10
%
1200 5
0 -5
Net Sales Growth (%)
Exhibit 24: Break-up of major topline contributors

3200
160.0
2700
120.0
2200
130.0 167.5
1700 128.9
| Crores
116.8
2993.7
1200 2451.0
2006.5 1949.6
1586.0 1642.1
700
200
-300 FY08 FY09 FY10 FY11E FY12E FY13E
Cement Jute
Exhibit 25: Contribution in net sales

% contribution FY08 FY09 FY10 FY11E FY12E FY13E
Cement 92.0 91.7 93.0 91.6 94.9 94.6
Jute 6.8 7.2 6.0 7.9 4.6 5.1
Others 1.3 1.1 1.0 0.5 0.5 0.4

Page 12
EBITDA margin expected to remain subdued on cost pressure

We expect the decline in EBITDA margin for FY11E and FY12E to be 20%
and 16.1%, respectively, as against 33% in FY10. This is mainly due to
bleak cement demand coupled with rising raw material cost and power &
fuel cost in the cement segment. However, we expect the EBITDA margin
to improve in FY13E to ~18.4% with stabilisation of added capacities and
improving supply demand scenario across the region.
Exhibit 26: EBITDA and EBITDA margin (%)
600 557.2 30
500 25
393.6
400 349.3 20
323.5 321.6
| Crores
300 15
%
234.0
200 10
100 5
0 0
PAT PAT Margin (%)
Net profit to increase after FY12E

Net profit is expected to decline ~42% YoY and ~27% YoY in FY11E and
FY12E to | 322 crore and Rs 234 crore, respectively, as operating profit
declined ~39% YoY and 3% YoY due to margin erosion in the cement
segment. However, in FY13E, the net profit is expected to increase ~49%
YoY to | 349.3 crore on the back of 230 bps YoY improvement in
operating profit margin led by cement segment. Depreciation cost is
expected to increase at ~24% CAGR during FY10-13E due to capex of |
1300 crore during the period. Interest cost is expected to increase
significantly by ~120% YoY in FY11E and ~32% YoY in FY12E on the
back of debt borrowing of | 440 crore in FY11E and FY12E.
Exhibit 27: PAT and PAT margin (%)
600 557.2 30
500 25
393.6
400 349.3 20
323.5 321.6
| Crores
300 15
%
234.0
200 10
100 5
0 0
PAT PAT Margin (%)

Page 13
Return ratios to improve after FY12E

Return ratios are expected to decline in FY11E and FY12E on account of a
decline in earnings due to lower operating margins and higher interest
cost. However, the ratios are expected to start improving from FY13E as
the majority of the capex will get completed in FY11E and FY12E. Also,
the profitability will increase in FY13E as the company will be reaping the
benefits of the capacity expansions. We expect RoNW and RoCE to
increase to 13.8% and 13.4%, respectively, in FY13E after declining to
10.5% and 9.6%, respectively, in FY12E.
Exhibit 28: Return ratios trend
45 41.8
40
35 39.2 31.1
30 25.1
25
26.0
%
20 24.4 15.6
13.8
15 10.5
10 13.4
12.0
5 9.6
0
RoNW (%) RoCE (%)

Page 14
Valuation
We expect BCL’s net sales to grow at ~14% CAGR (FY10-13E) and
EBITDA margins to improve in FY13E on account of increasing cement
realisations. This would help to offset higher cost of production. The
return ratios are also expected to improve from FY13E on account of
increasing profitability.
The company has grown itself in terms of growing its sales volumes,
improving operating margins and cash generation over the last 10 years.
In the last down cycle phase of the Indian cement industry (FY01-03), the
company was trading at nearly ~$10-30 per tonne on account of its low
operating margins (5-6%), negative return on equity ratio and leveraged
balance sheet (D/E of 1.3-2.0) during the period.
At the CMP of | 309, the stock is trading at 10.2x and 6.8x its FY12E and
FY13E earnings, respectively. It is trading at 5.5x and 3.3x its FY12E and
FY13E EBITDA, respectively. On a replacement cost basis, the stock is
trading at $54 per tonne and $46 per tonne at its FY12E and FY13E
capacities, respectively.
We have used the SOTP based valuation methodology to value the stock.
We have valued the cement business on a replacement cost method and
assigned a value of $50/tonne to its FY13E capacity of 9.3 MTPA, which is
at nearly 60% discount to the current replacement cost of $125/tonne. For
the jute and others segment, we are assigning market cap/sales multiple
of 0.2x its FY13E sales. Hence, we are initiating coverage on the stock
with a BUY rating and target price of | 343 per share.
Exhibit 29: EV/tonne chart
4000
$100
In the current cycle, the company has been trading at 3000

~$65-70 per tonne on the back of better operating margin, $70
| Crores
better return ratios and de-leveraged balance sheet 2000 $50

compared to the last down cycle phase
$30
1000
$10
0
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
EV 50 70 100 30 10

Exhibit 30: EV/EBITDA chart
6000.0
5000.0
7.9x
4000.0
| Crores
7x
3000.0
4.3x
2000.0
1000.0 1.6x
0.7x
0.0
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
EV 4.3 7.0 7.9 1.6 0.7

Page 15
Exhibit 31: SOTP valuation
Remarks
Cement Capacity (FY13E) MTPA 9.3
Target EV/Tonne $ 50
Cement EV | Crore 2129.8
Jute Sales (FY13E) | Crore 160.0

Target Mcap/Sales x 0.2
Jute EV | Crore 32.0
Others Sales (FY13E) | Crore 173.2

Target Mcap/Sales x 0.2
Others EV | Crore 34.6
Total target EV | Crore 2196.4

Net Cash (FY13E) | Crore 444.2
Target Market Cap | Crore 2640.7

NoS Crores 7.7
Target Price |/Share 343
CMP |/Share 309
Potential Upside % 11
Exhibit 32: Peer group comparison
P/E (x) EV/EBITDA (x) P/BV (x) EV/Tonne ($)

MCap (| Cr) FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E
ACC* 18640 16.6 24.1 18.7 10.6 13.1 9.7 2.9 2.9 2.7 122 125 119
Ambuja Cement* 19276 15.5 18.2 16.0 9.3 9.5 7.9 2.6 2.4 2.2 142 139 130
Ultratech Cement 26214 11.0 19.7 18.4 13.2 10.7 8.6 2.6 2.1 2.2 251 119 119
Shree Cement 6013 8.9 32.3 16.7 4.0 7.9 5.5 3.1 2.9 2.5 126 118 95
India Cement 2703 8.3 68.4 21.1 5.2 11.5 7.8 0.8 0.8 0.8 73 76 82
JK Cement 937 4.1 51.6 15.0 4.3 10.2 6.9 0.9 0.9 0.9 52 57 58
JK Lakshmi Cement 537 2.3 12.9 6.6 1.8 5.8 5.0 0.5 0.5 0.5 35 41 47
Orient paper 945 5.9 8.8 6.4 4.5 5.1 3.9 1.3 1.2 1.0 45 39 33
Mangalam cement 302 2.5 16.4 14.0 1.0 5.9 4.5 0.8 0.8 0.7 21 27 26
Birla Corporation 2464 4.4 7.7 7.7 2.4 5.0 5.7 1.4 1.2 1.1 62 63 56
Heidelberg Cement* 884 14.0 26.7 17.8 6.7 15.5 9.4 1.1 1.1 1.0 48 91 52
* FY11E and FY12E indicates CY11E and CY12E

Page 16
Exhibit 33: Profit and loss account
| Crores FY08 FY09 FY10 FY11E FY12E FY13E

Net Sales 1724.8 1790.7 2157.0 2127.4 2583.0 3165.7
Growth (%) 10.1 3.8 20.5 -1.4 21.4 22.6
Change in stock -29.6 13.4 -27.1 -45.1 0.0 0.0
Raw material cost 196.3 226.9 284.9 392.9 387.1 485.9
Power & Fuel cost 328.3 368.2 382.1 479.6 650.2 784.5
Employee cost 141.5 148.6 146.3 175.6 225.0 253.3
Freight cost 201.6 244.3 270.9 306.5 413.3 490.7
Others cost 311.3 363.5 394.9 390.8 492.5 569.8
Total Expenditure 1149.4 1364.9 1451.9 1700.3 2168.1 2584.1
EBITDA 575.4 425.8 705.1 427.1 414.9 581.6
Growth (%) -26.0 65.6 -39.4 -2.9 40.2
Other Income 38.3 76.1 138.3 129.6 74.8 78.5
Depreciation 41.4 43.4 55.6 67.0 90.9 106.7
EBIT 572.2 458.5 787.8 489.7 398.7 553.4
Interest 21.1 22.1 27.0 59.2 78.1 74.9
Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0
PBT 551.2 436.5 760.8 430.5 320.6 478.4
Growth (%) -20.8 74.3 -43.4 -25.5 49.2
Tax 157.6 113.0 203.6 108.9 86.6 129.2
PAT 393.6 323.5 557.2 321.6 234.0 349.3
Growth (%) -17.8 72.2 -42.3 -27.2 49.2
Adjustments 0.0 0.0 0.0 0.0 0.0 0.0
Addjusted PAT 393.6 323.5 557.2 321.6 234.0 349.3
Adjusted EPS 51.1 42.0 72.4 41.8 30.4 45.4
Exhibit 34: Balance sheet

Equity Capital 77.0 77.0 77.0 77.0 77.0 77.0
Reserves & Surplus 928.0 1210.7 1714.2 1981.8 2161.7 2456.9
Shareholder's fund 1005.0 1287.7 1791.2 2058.8 2238.7 2533.9
Total Loans 272.3 276.4 709.2 949.2 1149.2 999.2
Deffered Tax Liability 66.7 77.2 79.5 79.5 79.5 79.5
Sources of funds 1343.9 1641.4 2579.9 3087.5 3467.4 3612.6
Gross Block 1173.4 1354.2 1430.0 1921.6 2624.4 2759.4

Accumulated depn 672.6 694.2 731.3 798.4 889.3 996.0
Net Block 500.8 660.0 698.7 1123.2 1735.1 1763.4
Capital WIP 126.7 141.9 327.8 350.0 100.0 50.0
Total Fixed Assets 627.5 801.9 1026.5 1473.2 1835.1 1813.4
Investments 634.0 552.3 1141.7 1141.7 1141.7 1141.7
Inventories 200.4 192.9 283.7 205.9 388.6 270.6
Debtors 31.7 20.0 22.1 36.1 34.6 52.1
Cash & Bank Balance 31.4 319.7 339.3 139.6 125.6 301.8
Loans & Advances 473.1 151.1 196.6 484.9 548.3 591.4
Total current assets 736.6 683.7 841.8 866.6 1097.0 1215.9
Creditors 301.1 329.6 365.0 334.4 514.8 474.0
Provisions 353.1 66.9 64.9 59.5 91.6 84.3
Total current liabilities 654.2 396.5 429.9 394.0 606.4 558.3
Net Current assets 82.5 287.2 411.8 472.6 490.7 657.6
Application of funds 1343.9 1641.4 2579.9 3087.5 3467.4 3612.6

Page 17
Exhibit 35: Cash flow statement

Profit after tax 393.6 323.5 557.2 321.6 234.0 349.3
Depreciation 41.4 43.4 55.6 67.0 90.9 106.7
Change in WC -9.1 83.6 -105.1 -260.5 -32.1 9.3
CF from operations 425.9 450.6 507.7 128.2 292.9 465.2
Pur of fixed assets -142.6 -217.9 -280.2 -513.8 -452.8 -85.0
Pur of Investments -213.9 81.7 -589.4 0.0 0.0 0.0
Others -7.6 10.5 2.3 0.0 0.0 0.0
CF from investing -364.1 -125.6 -867.3 -513.8 -452.8 -85.0
Proceeds from loans -10.4 4.2 432.7 240.0 200.0 -150.0
Payment of Dividend -36.0 -40.5 -54.0 -54.1 -54.1 -54.1
Others -18.4 -0.2 0.3 0.0 0.0 0.0
CF from Financing -64.8 -36.6 379.1 185.9 145.9 -204.1
Net Cash flow -3.0 288.4 19.6 -199.7 -14.0 176.2
Cash at the beginning 34.4 31.4 319.7 339.3 139.6 125.6
Cash at the end 31.4 319.7 339.3 139.6 125.6 301.8
Exhibit 36: Key parameters
YoY Growth FY08 FY09 FY10 FY11E FY12E FY13E

Net Sales 10.1 3.8 20.5 -1.4 21.4 22.6
EBITDA 16.6 -26.0 65.6 -39.4 -2.9 40.2
Adj net profit 20.6 -17.8 72.2 -42.3 -27.2 49.2
Cash EPS 18.9 -15.7 67.0 -36.6 -16.4 40.3
Net worth 50.9 28.1 39.1 14.9 8.7 13.2
Per share values FY08 FY09 FY10 FY11E FY12E FY13E

EPS (Adjusted) 51.1 42.0 72.4 41.8 30.4 45.4
Cash EPS 56.5 47.6 79.6 50.5 42.2 59.2
Cash per Share 4.1 41.5 44.1 18.1 16.3 39.2
Revenue per Share 224.0 232.5 280.1 276.3 335.4 411.1
Dividend per share 4.0 4.5 6.0 6.0 6.0 6.0
BV per share 130.5 167.2 232.6 267.3 290.7 329.0
Margins FY08 FY09 FY10 FY11E FY12E FY13E

EBITDA margin (%) 33.4 23.8 32.7 20.1 16.1 18.4
EBIT margin (%) 31.0 21.4 30.1 16.9 12.5 15.0
PAT margin (%) 22.8 18.1 25.8 15.1 9.1 11.0
RoNW (%) 39.2 25.1 31.1 15.6 10.5 13.8
RoCE (%) 41.8 24.4 26.0 12.0 9.6 13.4
Expense to net sales FY08 FY09 FY10 FY11E FY12E FY13E

Raw material cost (%) 11.4 12.7 13.2 18.5 15.0 15.3
Power & fuel cost (%) 19.0 20.6 17.7 22.5 25.2 24.8
Employee cost (%) 8.2 8.3 6.8 8.3 8.7 8.0
Freight cost (%) 11.7 13.6 12.6 14.4 16.0 15.5
Others cost (%) 18.0 20.3 18.3 18.4 19.1 18.0
Tax rate (%) 28.6 25.9 26.8 25.3 27.0 27.0

Page 18
Exhibit 37: Per share ratios
Turnover ratios FY08 FY09 FY10 FY11E FY12E FY13E

Asset Turnover 1.5 1.2 1.0 0.8 0.8 0.9
Inventory Turnover 10.1 9.1 9.1 8.7 8.7 9.6
Debtor Turnover 58.5 69.3 102.4 73.0 73.0 73.0
Creditor Turnover 6.4 5.7 6.2 6.1 6.1 6.4
Du Pont Analysis FY08 FY09 FY10 FY11E FY12E FY13E

PAT/PBT 71.4 74.1 73.2 74.7 73.0 73.0
PBT/EBIT 103.2 114.1 117.1 119.5 99.0 100.7
EBIT/Sales 31.0 21.4 30.1 16.9 12.5 15.0
Sales/Asset 128.3 109.1 83.6 68.9 74.5 87.6
Asset/Equity 133.7 127.5 144.0 150.0 154.9 142.6
RoE 39.2 25.1 31.1 15.6 10.5 13.8
Liquidity ratios FY08 FY09 FY10 FY11E FY12E FY13E

Operating Cash flow 425.9 450.6 507.7 128.2 292.9 465.2
Free cash flow 270.1 200.5 134.7 -456.0 -156.5 376.7
Capital employed 1343.9 1641.4 2579.9 3087.5 3467.4 3612.6
Debt to Equity 0.3 0.2 0.4 0.5 0.5 0.4
Debt/Capital employed 0.2 0.2 0.3 0.3 0.3 0.3
Interest coverage 25.4 17.3 24.1 6.1 4.1 6.3
Debt to EBITDA 0.5 0.6 1.0 2.2 2.8 1.7
Current ratio 1.1 1.7 2.0 2.2 1.8 2.2
Quick ratio 1.1 0.9 1.2 1.8 1.6 1.6
FCF (| Crore) FY08 FY09 FY10 FY11E FY12E FY13E

EBITDA 575.4 425.8 705.1 427.1 414.9 581.6
Less tax 157.6 113.0 203.6 108.9 86.6 129.2
NOPAT 417.8 312.9 501.5 318.3 328.3 452.4
Capex 138.6 196.0 261.7 513.8 452.8 85.0
Change in WC -9.1 83.6 -105.1 -260.5 -32.1 9.3
Free cash flow 270.1 200.5 134.7 -456.0 -156.5 376.7
Valuation parameters FY08 FY09 FY10 FY11E FY12E FY13E

P/E (x) 6.0 7.4 4.3 7.4 10.2 6.8
EV/EBITDA (x) 3.5 4.2 2.3 4.8 5.5 3.3
EV / Net sales (x) 1.2 1.0 0.7 1.0 0.9 0.6
EV/Tonne ($) 76.4 68.6 58.9 60.7 54.0 46.2
Market cap/Sales (x) 1.4 1.3 1.1 1.1 0.9 0.8
Price /Book value (x) 2.4 1.8 1.3 1.2 1.1 0.9
Dividend yield (x) 1.3 1.5 1.9 1.9 1.9 1.9

Page 19
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ANALYST CERTIFICATION
We /I, Vijay Goel MBA FINANCE Rashesh Shah CA, Hitesh Taunk MBA FINANCE research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
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ICICIdirect.com | Equity Research

Share holding pattern (Q3FY11) Company background

Product Installed capacity Cement Plant locations Capacity (MTPA)

Exhibit 4: Plant Locations

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Capacity expansion to drive volume growth

Grinding Capacity Location FY10 FY11E FY12E FY13E

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Sales volume to grow at ~12% CAGR during FY10-13E

Exhibit 6: Capacity expansion to drive volumes

10.0 9.3 9.3

Cement Capacity Cement Volumes

Source: Company, ICICIdirect.com Research

Favourable market mix

Exhibit 7: Current regional exposure Exhibit 8: Regional exposure post expansion

North, East, 24%

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Million tonnes FY08 FY09 FY10 FY11E FY12E FY13E

Source: CMIE, ICICIdirect.com Research

Demand in the northern region will be driven by housing projects in the

Exhibit 12: Demand supply matrix of central region

Million tonnes FY08 FY09 FY10 FY11E FY12E FY13E

Source: CMIE, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Million tonnes FY08 FY09 FY10 FY11E FY12E FY13E

Source: CMIE, ICICIdirect.com Research

Demand in the eastern region will be driven by industrial projects in the

Cement prices expected to increase on improving utilisation rates

ICICIdirect.com | Equity Research

Source: Dealers, ICICIdirect.com Research

Strong balance sheet provides enough room to expand

Exhibit 15: Free cash flow and D/E ratio

Free Cash flow D/E

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

FY08 FY09 FY10 FY11E FY12E FY13E

EBIT (| Crore) 568.0 422.0 602.4 345.0 317.5 469.4

Exhibit 17: Cement realisation and EBIT per tonne

Cement Realisation Cement EBIT per tonne

Source: Company, ICICIdirect.com Research

FY08 FY09 FY10 FY11E FY12E FY13E

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Risk & concerns

Lower than expected realisation growth

Exhibit 19: Sensitivity analysis on earnings with change in realisation

Change in Realisation in FY12E over FY11 keeping other variables constant

Change in Realisation in FY13E over FY12 keeping other variables constant

ICICIdirect.com | Equity Research

Higher than expected increase in coal prices may hurt margins

Exhibit 20: Domestic and international coal prices

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

ICICIdirect.com | Equity Research

Exhibit 23: Net sales and YoY growth (%)

Net Sales Growth (%)

Source: Company, ICICIdirect.com Research