Birla Corporation profits hit by production costs in 2QFY22-23

Even with a double-digit increase in cement sales by volume, Birla Corp Ltd’s September 2022 quarter (2QFY22-23) profitability was hit by a sharp increase in power and fuel costs. The seasonally weak monsoon quarter meant the company was unable to pass these costs onto the customer, resulting in EBITDA in the quarter falling 51.6 per cent YoY to INR1360m (US$16.7m).

Profitability was also impaired by the costs related to the newly commissioned 3.9Mta integrated plant in Mukutban run by the company’s subsidiary, RCCPL Private Ltd. In the current financial year, the new works is expected to produce around 1Mt of cement, according to the company. Excluding Mukutban, EBITDA for the September quarter was down 31 per cent YoY at INR1940m, while EBITDA/t was at INR409, down 46.3 per cent on the September 2021 quarter. Capacity utilisation over the three-month period came in at 74 per cent.

Sales volumes for the company during the September 2022 quarter stood at 3.64Mt, marking 11 per cent growth on the same period a year earlier. For the first time in years, the company suffered a net loss of INR560m in the September quarter, versus a net profit of INR860m in the same period a year earlier.

Compared to the same period a year ago, fuel costs for cement production were up 74 per cent. At the same time, power costs advanced 14 per cent YoY. Overall cement production costs in the September quarter grew by 20 per cent YoY. Though realisation per ton in the September quarter at INR5119 was up 5.6 per cent YoY, this was not enough to mitigate the cost pressure. Excluding Mukutban, realisation for the quarter was INR5144.

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 implemented earlier in the financial year. As construction activities start to gain momentum after Diwali, Birla Corporation is looking to raise prices in November 2022.

In line with its strategy of driving sales of blended and premium cement, the company managed to boost sales volumes of its blended cement by 10 per cent 3.28Mt in the September 2022 quarter, or about 90 per cent of total sales by volume, against 91 per cent in the same period last year. Excluding Mukutban, sales by volume of blended cement were up seven per cent YoY. Sales of premium cement were up six per cent by volume to 1.44Mt, which represents around 51 per cent of sales through the more profitable trade channel.