Birla Corporation’s September Quarter Sales Up 11%, Profitability Impaired by Cost Escalation

Kolkata, 9 Nov: Even with 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 bottom line 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.

  Q2/FY 22-23 Q2/FY 21-22 Change H1/FY 22-23 H1/FY 21-22 Change
Revenue 2042 1711 19.3% 4260 3470 22.8%
EBITDA 136 281 -51.6% 409 633 -35.4%
(Excl. Mukutban) 194 281 -30.7% 507 633 -20.0%
Cash Profit 43 217 -80.3% 246 506 -51.4%
(Excl. Mukutban) 126 217 -42.2% 382 506 -24.5%
Net Profit -56 86 -166.0% 5 227 -97.8%
Realization per ton 5,119 4,847 5.6% 5,219 4,890 6.7%
(Excl. Mukutban) 5,144 4,847 6.1% 5,237 4,890 7.1%
EBITDA per ton 234 762 -69.3% 447 882 -49.3%
(Excl. Mukutban) 409 762 -46.3% 717 882 -18.7%

(All figures in Rs crore except realization per ton and EBITDA per ton.)

 Kolkata, 8 Nov: Even with 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 bottom line 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.

Q2/FY22-23

Q2/FY21-22

H1/FY22-23

H1/FY21-22

Sales by volume

3.64 mt

(up 11.4%)

3.27 mt

7.58 mt

(up 14.5%)

6.62 mt

Capacity utilization

74%

84%

81%

87%

Blended cement

90%

91%

91%

92%

Trade channel

78%

80%

79%

81%

Premium cement

51%

52%

49%

52%

(mt: million tons)

Mukutban: The new integrated factory was a drag on Birla Corporation’s financials in the September quarter due to a variety of reasons. Most importantly, demand was weaker than anticipated, largely due to excessive rainfall. As a result, prices remained soft. To optimize, the kiln had to be fed expensive imported coal. Because of weak demand, the kiln could not be run for a substantial period during the quarter. Transportation and handling costs of the Mukutban unit were also significantly higher than normal because operations at the railway siding have not fully started yet. Despite difficulties, the Company has managed to make significant inroads into the market with its superior product offerings from the Mukutban factory.

Production cost at Mukutban will start to come down from the current quarter as the plant stabilizes and output goes up. The waste heat recovery system (WHRS) of the unit will start to generate power from December. The Company will start to use pet coke in the kiln and also optimize fuel mix in its captive power plant. The clinker factor will also improve from the current quarter. Alongside, logistics costs will come down as the railway siding becomes fully operational. On the sales front, the Company is working to improve the geo mix and product mix and enhancing sales of premium products, which is expected to improve realizations.

It is expected that the Persoda mines near the Mukutban factory will become operational next year, and will bring down the cost of limestone. Also, the Company is endeavoring to receive grid power in the next financial year, which will reduce power costs significantly. The Company will start receiving GST incentives for the Mukutban factory in the next financial year, which will significantly boost the unit’s financial performance.

Mining: In October, Birla Corporation secured through auction a new coal mine, Marki Barka, in Madhya Pradesh. It has a geological reserve of 70 million tons of coal and a peak-rated capacity of producing 1 million tons a year. A significant part of these reserves is of high-quality G6 grade. The Company paid a modest premium of 6% over the notified price to secure the mine. It is expected to become operational within FY2025-26 and will replace expensive imported fuel.

Among other coal mines, production from Sial Ghogri has reached a new high of 89,600 tons in the September quarter, while open-cast mining from Bikram is expected to start in the first quarter of FY2023-24. It has a peak-rated capacity of producing 360,000 tons per annum.

These captive coal mines secured by Birla Corporation have the potential to fulfill the needs of the Company’s factories in central India. Extraction of coal from these captive mines will significantly reduce production costs and insulate operations from volatility in fuel prices.

Debt: Birla Corporation’s net debt at the end of September stood at Rs 4,173 crore against Rs 3,349 crore a year earlier. Indebtedness has increased due to the completion of the Mukutban project and the additional requirement of working capital, but the cost of borrowing has been scaled back by 33 basis points from a year earlier to 6.97% at the end of September by refinancing and renegotiating term loans amounting to around Rs 1,400 crore.

Renewable power: The share of renewable power in total power consumption for cement production in the September quarter was 20.6%, a tad higher than the same period a year ago. For the six months till September, share of renewables was 21.3%. Alternative Fuel and Resources (AFR) accounted for 9% of the Company’s total fuel consumption in the September quarter against 6% in the same period a year ago. The Company continues to make investments in this area to enhance the share of AFR. By the end of the current financial year, AFR’s share is expected to increase to around 12%.

Leadership change: The Board of Directors of Birla Corporation on Tuesday approved the appointment of Shri Sandip Ghose as the Company’s Whole-time Director from 1 December to 31 December 2022, and as the Managing Director and Chief Executive Officer, effective 1 January 2023, for a period of three years, subject to the approval of shareholders.

Shri Arvind Pathak is stepping down as Managing Director and Chief Executive Officer due to personal reasons. Shri Pathak was instrumental in charting a roadmap for aggressive growth and took multiple initiatives to improve efficiency. The Board acknowledged his contributions to the Company.

Shri Ghose brings to the Company’s leadership team 39 years of experience in management, spread across multiple industries such as fast-moving consumer goods, media, and construction materials. He has previously worked at Birla Corporation as the Chief Operating Officer and was responsible for transforming the marketing function of the Company, following the acquisition of the erstwhile Reliance Cement Company Private Limited (now RCCPL Pvt. Ltd). He was on a sabbatical during the pandemic to pursue his interests in mentoring young professionals and advising companies on business strategy.

Jute: Birla Corporation’s Jute Division registered a cash profit of Rs 13.45 crore for the September quarter against Rs 18.02 crore in the same period last year. Though the division managed to improve production over the comparable period last year—from 7,920 metric tons to 9,501 metric tons—profits were down because dispatches were disrupted. The division has for years been focusing on improving productivity and production of value-added goods with an eye on the export market. During the September quarter, the division’s income from exports more than doubled to Rs 29.27 crore from Rs 8.98 crore a year ago.

Birla Corporation Limited is the flagship Company of the MP Birla Group. Incorporated as Birla Jute Manufacturing Company Limited in 1919, it was given shape by Syt MP Birla. The Company has an interest in cement and jute goods. Its 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 in eight locations across the country, with an annual installed capacity of 20 million tons. The Company produces an array of cement products, under the MP Birla Cement brand, suited to different climatic conditions as well as consumer segments. It also sells construction chemicals and wall putty.