What’s Driving Investor Interest in Birla Corporation Limited (NSE:BIRLACORPN) ? Stock UP 50% in 2 Years.

Birla Corporation Limited is the flagship company of MP Birla Group. Incorporated as Birla Jute Manufacturing Company Limited in 1919. Shaped by Mr. MP Birla. The company is interested in cement and jute goods.

 Birla Jute Mills is the first jute mill started by an Indian entrepreneur. The company and its subsidiary RCCPL Pvt Ltd have 11 cement plants spread across eight locations across the country with an annual installed capacity of nearly 20 million tonnes.

The company manufactures a range of cement products under the MP Birla Cement brand suitable for various climatic conditions as well as consumer segments. It also sells construction chemicals and putty for walls.

The cement division of Birla Corporation Limited has 11 plants at eight locations, Satna & Maihar (Madhya Pradesh), Raebareli & Kundanganj (Uttar Pradesh), Chanderia (Rajasthan), Mukutban & Butibori (Maharashtra) and Durgapur (West Bengal).

 It manufactures various types of cement such as Ordinary Portland Cement (OPC), Grades 43 and 53, Portland Pozzolana Cement (PPC), Fly Ash PPC, Low Alkali Portland Cement, Portland Slag Cement (PSC), Low Temperature Cement and Sulphate cement. .

The cement is sold under the brand names of MP Birla Cement PERFECT PLUS, RAKSHAK, SAMRAT ADVANCED, ULTIMATE ULTRA, UNIQUE, SAMRAT, ULTIMATE, CHETAK, PSC, MULTICEM & CONCRECEM, bringing the product under the common brand of MP Birla Cement.

Consolidated operating revenues during the quarter stood at Rs 2,204 crore, up ~26%, even during a season of weak cement demand during the quarter where the company managed to increase capacity utilization.

Realization/t stood at Rs 5,311, up ~7.66% YoY but down 0.5% QoQ. Although realizations improved, it was not enough to offset the increase in fuel and other costs. The company also faced challenges in coal supply from coal linkages and e-auction of coal by Coal India Ltd, forcing it to buy coal from the open market at a premium.

Also, the cost of power at Satna and Chanderia power plants has increased significantly. Power and fuel costs came in at Rs 1564/t (up 41% YoY and 47% QoQ). The Mukutban plant (capacity 3.9 million tons) started production on April 30. Including Mukutban, capacity utilization was 88%, although without it, capacity utilization was 101%.

EBITDA during the quarter was Rs 259 crore, down ~24.5%. YoY. EBITDA/t stood at Rs 645, down ~35.56% YoY. However, after adjusting for Mukutban’s upfront costs, the division’s profitability in terms of EBITDA per tonne for the June quarter remained more or less unchanged at Rs 751 compared to Rs 755 in Q1FY22.

Adjusted PAT during the quarter was Rs 74 crore, down ~48%. YoY. Net debt stood at Rs 3,701 crore against Rs 3,368 crore in Q1FY22. The business mix during the quarter was 79:21, while blended sales reached 91%.

BCL saw volume growth in all its key markets in North, Central and East India in the June quarter, driven mainly by the infrastructure sector. However, the price hike that took place in April to reflect the increase in input costs could not be sustained due to adverse market conditions.

After several quarters of steadily improving financial performance, its jute division posted a weak quarter, mainly due to a substantial increase in jute prices. Sales remained flat during the quarter, raw jute prices per metric ton increased ~11.4% year-over-year and total costs increased ~5.6% year-over-year. BCL continues to focus on increasing exports of value-added jute products to reduce dependence on government orders at regulated prices.

BCL has committed to increase its annual cement production capacity to around 30 million tonnes (mt) by 2030. The current production capacity is 20 million tonnes. This ambitious expansion plan promises an optimistic outlook for the Company by ensuring better profitability, cash flow and efficiency.

BCL remains exposed to demand and price dynamics in the cement industry, which are affected by cyclical economic trends and capacity additions by players in respective regions during such periods. When the increase in capacity exceeds the incremental demand, it will affect the prices and consequently the profitability of the players.

RCCPL has set up a greenfield integrated cement plant at Mukutban in Maharashtra with a capacity of 3.9 million MTPA at a cost of around Rs 2,744 crore.

The project is being financed through a 2:1 debt-equity mix, and commercial production has commenced from April 2022, after a delay from earlier expectations due to operational challenges during the Covid-19 pandemic.

Total net debt/EBITDA was modest at 3.06x in FY22 (vs. 2.27x in FY21) due to higher debt levels and softening operating profits. Continued debt-financed capex (in limestone, coal blocks and sustainment capex) along with continued pressure on operating margins are likely to moderate BCL’s leverage and coverage ratios in FY23.

We believe that the various cost-saving initiatives undertaken by the company (such as waste heat recovery and solar plants to replace high-cost grid power), increased clinker capacity and coal production from its own mines would help grow revenue and margins.

The ramp-up of its newly commissioned greenfield integrated plant at Mukutban with access to self-consumption limestone and coal mines would further improve operational efficiency in the near future. The favorable impact of the new plant on operational metrics and high power and fuel costs weighed on its FY22 results. We think both could be more favorable for BCL from Q2FY23 onwards.