Friday, July 12, 2024

Birla Corporation’s September quarter sales up 11%, profitability impaired by cost escalation

Even with a double-digit growth in cement sales by volume, Birla Corporation Limited’s September quarter profitability was impaired by a sharp increase in power and fuel costs, which could not be passed on to consumers in the seasonally weak monsoon quarter. Faced with a substantial increase in production cost, EBITDA for the September quarter fell 51.6% year-on-year to Rs 136 crore.

Commercial production at the Company’s subsidiary, RCCPL Private Limited’s 3.9 million ton integrated cement plant at Mukutban in Maharashtra, had started at the end of April. Profitability was also impacted by the costs related to the newly commissioned unit, pending stabilization of operations. In the current financial year, the Mukutban plant is expected to produce around 1 million tons of cement.

Excluding Mukutban, Birla Corporation’s EBITDA for the September quarter was down 31% at Rs 194 crore. Capacity utilization for the quarter was at 74%, and 89% on a like-for-like basis (excluding Mukutban). Owing to excessive cost pressure, EBITDA per ton fell to Rs 234 against Rs 762 in the same period last year. Excluding Mukutban, EBITDA per ton was at Rs 409, down 46.3% on a comparable basis.

The Company’s sales by volume in the September quarter at 3.64 million tons represents an 11% growth over the same period last year. On a comparable basis (excluding sales from Mukutban), sales by volume were up 7.6%, and revenue for the September quarter (including jute) at Rs 2,042 crore was up 19.3% year-on-year. Adjusted for the increase in
production capacity, revenue for the September quarter grew 16.2%.

For the first time in several years, Birla Corporation suffered a net loss of Rs 56 crore in the
September quarter against a net profit of Rs 86 crore in the same period last year. The Company’s bottomline was also impacted by higher interest and depreciation costs on account of the Mukutban unit, which was set up at an investment of Rs 2,744 crore. When
scaled up to full capacity, the Mukutban unit will augment the Company’s production capacity to 20 million tons.

Cost pressure: Fuel cost shot up the most in the September quarter. Compared to the same period a year ago, fuel cost for cement production went up 74%. Sequentially, it rose
6%. At the same time, power cost went up 14% year-on-year, while sequentially it rose 5%. Overall cement production cost in the September quarter went up 20% year-on-year and 5% sequentially.

Sales:The September quarter is typically weak for the cement industry because of monsoons. This year, some of Birla Corporation’s key markets such as Madhya Pradesh, Rajasthan, Maharashtra and Gujarat received excessively heavy rainfall. This forced the
Company to roll back the price revision done earlier in the financial year. Though realization per ton in the September quarter at Rs 5,119 was up 5.6% year-on-year from Rs 4,847, it was down 3.6% sequentially, and wasn’t enough to mitigate the cost pressure. Excluding Mukutban, realization for the quarter was at Rs 5,144.

In line with its strategy of driving sales of blended and premium cement, the Company managed to boost sales of its blended cement by 10% by volume to 3.28 million tons, or
about 90% of total sales by volume, against 91% in the same period last year. Excluding
Mukutban, sales by volume of blended cement were up 7% year-on-year. Sales of premium cement were up 6% by volume at 1.44 million tons, which represents around 51% of sales through the more profitable trade channel.

As construction activities start to gain momentum after Diwali, Birla Corporation is looking to raise prices in November. Across India, the inventory of unsold real estate is contracting and it is expected that demand from the housing sector will again firm up. At the same time, State and Central Governments are looking to invest in infrastructure, which, too, should augur well for cement-makers.

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