The 102-year-old Birla Corporation, one of the oldest companies in India and one of its largest cement and jute producers, said the sharp rise seen in commodity prices in recent months and an extended monsoon hurt its margins during the Jul-Sep period.
The company’s operating profit or EBITDA — a measure of profit that excludes non-cash and non-operating items such as wear and tear accounting, interest and tax — fell sharply by 34% on year to Rs 281 cr during the quarter.
This was despite a modest, 2.1% increase in the top line or revenue to Rs 1,711 cr.
Net profit too was down 49% at Rs 86 cr for the three-month period.
“Demand for cement was majorly impacted by the extended and heavy monsoon and shortage of sand in states such as Uttar Pradesh and Bihar which are important markets for the company,” Birla Corp said.
“To sustain healthy market share and capacity utilization. which was maintained at 84% in the September quarter, the company had to channel its products outside its core markets, which, in turn. impacted realizations and profitability.
“Shortage of sand severely impacted the construction industry not only in Bihar. but in eastern Uttar Pradesh as well, a region where the Company has one of the highest market shares,” it noted.
Because of poor demand at its home markets and diversion of sales to non-traditional markets, the realized price of cement per ton fell to Rs 4,847 from Rs 4,862 in the same period of last year and around Rs 4,920 per kg during the preceding three months.
The shortage of sand was compounded by the extended monsoon seen in the country this year, particularly in the company’s markets of UP, Bihar and Maharashtra.
The company sold less cement during the July-September period compared to the preceding Apr-Jun period, at 3.27 million tons vs 3.35 mt. However, compared to the lock-down impacted Q2 of last year, volume was up by 0.01 mt.
Like nearly every other manufacturing company across the world, the company’s margins were ravaged by increasing costs associated with a global rally in prices caused by US and European central banks’ easy money policies.
Birla Corp said both raw material and packing material costs, as well as fuel charges, went up.
“Prices of pet coke and coal, both domestic and imported, went up sharply during the quarter. Linkage coal from subsidiaries of Coal India Limited was also in short supply, forcing the company to buy coal from the open market at substantially higher prices.
“Packaging cost went up owing to increase in polypropylene prices. Birla Corporation Limited has been consistently scaling up sales of its premium offerings, but in the September quarter it had an unfavourable impact on profitability because these products are packed in laminated polypropylene bags,” it said.
“Due to the increase in fuel prices, total distribution cost in the September quarter rose 5.4% over the same period last year while sequentially, the company managed to reduce it marginally. However, due to effective cost control and efficiency improvement, the impact of cost escalation on the Company’s business was less than the overall industry,” it said.
Birla Corp said it has decided to operate only one boiler at its captive power plants in Chanderia and Satna, and change power mix to reduce the impact of increase in power and fuel costs.
It is also trying to boost production of coal at its captive mine. Sial Ghogri. in the second half of the financial year.
“As a long term strategy, the company is expediting the development of two other captive coal mines, Vikram and Brahampuri, which were secured through auction in 2019,” it added.
It said it will look at alternative fuel, which not only reduces dependence on coal but also increases industrial waste absorption, it added.
The company said demand for cement has started to improve after the monsoon, allowing it to raise prices to partially pass on the increase in input costs.
“Taking advantage of an improved demand scenario, geographical mix of sales is being optimized again. Together. these measures are expected to improve net realization in the second-half of the financial year,” it said.
The 3.9 mt greenfield project at Mukuban, Maharashtra, is on track to get commissioned in the fourth quarter of the current year.
“This will add significantly to the Company’s sales by volume and profitability in the next financial year.”