Birla Corporation Limited (500335) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Birla Corporation Limited Q1 FY '27 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Rajesh Kumar Ravi from HDFC Securities Limited for opening remarks. Thank you. And over to you, Rajesh.

Thanks, Ryan. Good afternoon, everyone. On behalf of HDFC Securities, we welcome you all to the earnings call Birla Corporation Limited for Q1 FY '27. On behalf of the management, we have Mr. Sandip Ghose, MD and CEO; and Mr. Aditya Saraogi, Group CFO, including other senior members of the management team. I now hand over the call to the management team for their opening remarks, which will be followed by the Q&A. Over to you, sir.

Very good afternoon, and thanks all of you for joining on a late Saturday afternoon on the weekend as the weekend is starting. The results are already should be before you. The press release is out. We've informed the stock exchange. This quarter, I would say that we have been, to some extent, a victim of our own success as this -- and I'll explain why I say that. because we had over a period of time, maxed out on our trade sales, trade volumes and blended cement volume. Which, unfortunately, that segment did not see any significant price increase. In fact, they saw a bit of a price rollback in the last month of the quarter. Whereas the real gains have come during this period from the nontrade segment, industrial segment, and OPC, which is, again, not our strong suit as a matter of strategy. We have defocused from OPC because our capacity is, as you know, a very high level of capacity utilization. So we focus primarily on blended. So the blended overall in the industry scenario since the blended cement realizations didn't go up as much as it didn't go up at all in comparison to the nontrade, which showed significant recovery in most markets, especially North and even in the center. Our relative realization was lower than what was anticipated. We have expected that some amount of price correction will happen during the quarter. And especially since demand was pretty buoyant from the middle of May and June. But we were surprised that the reluctance on part of players to pass it on to the market. They instead focused on correcting their nontrade and OPC prices are letting really touching the trade prices where the gap certainly came down but overall price levels where I don't want to get into what is our reading of that. But this affected us most in Central India. Unfortunately, Central India, for whatever reason, the prices have remained soft practically for the last 1 year, I would say because of competition dynamics. And since over a period of time, again, our dependence on Central India or [ dependent or dominance ] in Central India are very high. And it has, in fact, increased further with the commissioning of [ KunanaLine ] 3. This, I wouldn't say hurt us, but we could not be beneficiary of the increases, which were seen in, say, for example, not. And certainly, in the East, which as I see the reports of the many companies, the East-based companies coming through, there has been people who have seen a major [ spurt ] in profitability over there. But we have a very small presence, as you know, in the East. So we didn't benefit on that. [ Maharashtra ] is the same story. We have been doing going in Mukutban are maintaining the volumes, in fact, changing product mix to get into more proximate markets, we don't want to go all the way up to Bombay, et cetera, except for the high-value OPC 53, which is sold in that market. We sell a bit of that. We are trying to focus on the closer geography. But we would -- we could have or we would like to ramp up the production further. We have headroom for it. In the last quarter, there were sporadic disturbance, logistics, as you know, for the availability of diesel and trucks, et cetera, that area, there were periods when there were dislocation and logistics. So we lost out some volumes over there. So there could have been additionally volume gain in that -- in Mukutban, which remains an opportunity area for us. Going forward, we think we will be able to take advantage of that. Now I wouldn't like -- we'll come back to our outlook of the second quarter and the rest of the year, which you know, most of the industry players who declared their results have already spoken there on that. We have certain other marketing plans, which will be -- we shall share with you in at the right time, which we are looking at, given the constraints, as I said, of the central region prices remaining where they are and if this continues, if the bigger players do not show any interest in raising the trade prices, we have to also revisit some of our strategy, which we have thought, but that will depend on how the market pans out. In terms of costs, I think in terms of our estimates, we have managed the costs reasonably well, given our -- again, our geography spread, our dependence on pet coke being where it is lower in terms of replacing. Some places, we do have limitations in terms of using domestic coal which some players have done and been able to, again, on a relative basis from their initial base they have been able to bring down. So for us, that has not been significant. We have been heard in, again, on the petroleum front and our mechanical mining, which happens in Rajasthan, there are because of diesel costs, et cetera. Some of that has added to our cost basis. But overall, in terms of our assessment, in terms of our estimates, we think we have done reasonably well under cost, [ Mr. Sergio ], I must approach you here, they will answer that more specifically. Second -- as we go forward, second quarter, we are all looking eagerly at how the market pan out, we are almost towards the end of July. So far, we haven't seen any movement in terms of pricing there to delayed monsoon, demand is continuing well. But if there monsoons hit later, one is -- one doesn't know how much it will have a carryover impact into the third quarter. if the cultural scenario is not that good if the harvest is not that good, but this is too early to predict that. We will look at it when we discuss either in the course of this quarter, we will talk about it or when we discuss the next quarter's projection. Thank you for my side. At the moment, I leave it to Mr. Saraogi, Mr. Prusty, we have Mr. Kalidas Pramanik and all of them there. So you can actually go straight into the questions. And as per your questions, we will take on the -- respective colleagues will answer. Thank you very much. Thank you.

[Operator Instructions] We take the first question from the line of Shravan Shah from Dolat Capital.

Before asking questions just 4, 5 data points so that would be better to ask a proper relevant question. Sir, if you can share the Mukutban volume late distance fuel cost that is a take for Q1 and CapEx for first quarter and net debt as on first quarter.

Mukutban volume was [indiscernible] total lead distance was [indiscernible] around 400 kilometers. And [indiscernible] cost was [ INR 1.64 ].

And CapEx and net debt for [ 41 ]?

CapEx was around INR 120 crores.

And net debt, sir?

Net debt INR 2,300 crores.

INR 2,300 crores. Okay. Got it. And the incentive will be at INR 28 crore?

Incentives, we are at INR 33 crores.

INR 33 crores. Okay. now, sir, as far as in the opening remarks, has mentioned that whatever our plus point in terms of the trade blended cement that are working against us in terms of the we are not seeing the price hike there versus the nontrade we are seeing. So given this and also at the same time, the Q2, maybe the way that everybody is talking in terms of the cost pressure would be dead. So two things to want to understand, in Q2, given, let's say, the prices as it is where it is, how much more cost pressure on port to we can see in the Q2, including everything diesel, obviously, [ betting ] will not be there, but the fuel and diesel? And overall, last time we said that we are looking at kind of 6%, 7% or maybe industry kind of growth and the EBITDA per ton of last time, which is [ 78 6% ], given this and maybe Q2 will be booked. Is it fair to say unless the prices improve, we would be seeing for full year FY '27 Y-o-Y maybe a decent decline on the EBITDA [indiscernible]?

I start with the initial comment on the realization. Now on the face of it, you find that there is a reaction in relation to the exchange of about INR 40 per tonne. But we have to see it in perspective. One, as I said, the incentive book in this quarter is about INR 33 crores. Now in the Q4 of last year, total incentive booked INR 60 crores. So on account of lower incentives, there's been an impact of about INR 50 per tonne on the realization on a [ rent ] basis. And to be on account of several other factors that we have always maintained, there are certain wearing adjustments relating to discounts, et cetera. So having regard to all those factors, actually, if we exclude those factors, [indiscernible] the quarter, [indiscernible] actually gone up by INR 8 on a sequential basis. Okay, number one. Coming to the question you asked in terms of cost pressure, yes, we continue to see cost pressure particularly feel the full impact [indiscernible] so in Q2, we expect the cost to increase by INR 70 to INR 80 sequentially. And as far as the growth is concerned, we are maintaining our guidance, which we have provided earlier. And as far as the EBITDA for the whole year, it is early to we are hopeful of prices recovering in the markets to operate. So it is a [ top metro ] to comment on the EBITDA for the whole year.

We take the next question from the line of [ Saket Kapoor ] from [ Kapoor and Company ].

As you mentioned that the CapEx for the quarter went to the tune of INR 120 crores. So what have we outlined for the current financial year?

We are maintaining the guidance of INR 900 crores for the whole year.

Okay. And the debt number at INR 2,300 crore, so what would be exiting the debt figure for FY '26, '27?

That is, we are not changing our guidance, but the guidance we have given, I think, possibly it was around INR 2,000-odd crores. So we are maintaining those guidance.

Okay. And sir, in terms of the CapEx part for this year, we will have the benefit -- the entire benefit of the [ Kundana ] line, the grinding on 1.4 million, that will add to the volume, so how are we moving ahead with our time line of FY '29 or [ 27.6 ] metric ton capacity, our things aligned...

Whatever guidance we are [indiscernible] we are not changing that we are on track to achieve our guidance. Okay. In terms of capacity expansion.

Okay. And sir, can you just explain to us, Mr. Ghose about the dynamics of trade and nontrade mix that have changed and as you mentioned that we need to take the course correction. So what has exactly happened? If you could just throw some more light on...

We are not taking -- we don't want to take cost correction in the terms of trade and nontrade. We are very happy with our mix. We are not going to give up trade to go into nontrade. That is not -- if that is the takeout, I'm sorry, that's not what I meant. I meant that knowing that we will be focused on trade as per our strategy. And if other players are not willing to take up prices in that segment for whatever reason of their own, if they are happy to keep the prices low and not go in for pricing periods, we have to then decide on our own strategy of how to play that market. And that is a marketing thing, which we are not going to discuss on an open call. But we will -- we cannot be dependent on others for very explicable reasons. When costs going up, everything if they do not feel the need to take up prices in that segment. We'll have to figure out how we protect our margins in that segment, which would be a riot necessarily by taking up price. It could be through other measures by which you do. So that is a part of the strategy, but we are not certainly going to change our strategy to reduce trade and increase nontrade.

And the nontrade is pertaining to the government purchases that is the institutional one. So as you mentioned that there is a lot of traction in that category. That is what the understanding is? And there is a lower uptake for the trade segment that is from the housing and the other segments?

I don't agree on that. If you see the volumes of the last quarter, May onwards, [indiscernible] middle May onwards, everybody has sold well evolved. That's why they have got growth. The growth has come from both segments. Delayed monsoons have in fact, kept the momentum going in rural demand as far as rural housing, et cetera, is concerned, because harvests were good and people have done. So that has continued. When we talk of nontrade, nontrade is not necessarily just infra demand, there are also real estate big, large real estate development. There are other industrial and other development where it goes. The problem was in previous quarters in last year, there had been a severe undercutting in the nontrade segment due to which the trade nontrade gap had increased to abnormal levels. And that was also hurting the trade prices and trade volume because in these markets, there is always leakage. There is always spill over from one side to the other, and nontrade prices are very low. Some of the material will naturally flow into the trade market and affecting both volumes and trade as well as the realization in trade. The players who have got larger stake in nontrade therefore first concentrated on correcting the nontrade prices because those nontrade prices were not remunerative on if you are to compare on a point-to-point like-to-like basis, those who have a higher non-trade component. And if non-trade has improved realization of INR 10 or INR 20 per bag, that translated into the top line better than others. Now since we are already focused on 85% practically on blended cement and over 80% on trade. And if that segment hasn't grown up, although we are -- our prices were big, wherever, we didn't get that incremental gain in that because that segment didn't grow. And because our non-trade component is low, whatever improvement over there, that has only a marginal impact on our overall realization. So that is the point I was making. I would like to thanks for asking this question. I hope people didn't get a feeling that we are now going to shift towards non-trade from trade. They're certainly not our strategy. We will focus on trade. We will focus on blended cement, not only because it makes commercial sense, but because we think it's a sustainable cement. It's good for the environment. So we are a strong watery of promoting blended cement, and we'll continue to do that.

Just a small point, sir, on the WHRS investment, what is our current capacity? And what are we advertising for the year? And also in terms of the other expenses line item, that has moved up from Q-on-Q basis from INR 264 crores to INR 281 crores. So what explains this jump? I think is the number is INR 511 to INR 551 on a controlled basis. I mentioned this standalone number. So these 2 points, if you could answer.

Rajat here for WHRS, our present capacity is around INR 43, INR 44 there are projects which are in the pipeline, which will further help us to increase to up to INR 50. And then obviously, when the [indiscernible], which will be coming, there will add another 17 million to 18 million-megawatt of WHRS.

Right, sir. And the other expenses part?

That I think we are checking that.

What is your question is [indiscernible]?

The other expenses Q-on-Q also has moved up from INR 511 to INR 551 on a consol basis. So what explains this 8%, 9% jump on a Q-on-Q basis? And just to add to it, sir, this year, we will have only the benefit of the [ Kundana line ] in the volume that is expected, the growth that is expected on this year?

Yes, [indiscernible], we will get full benefit this year and [indiscernible] is concerned, there is no specific on the annual increases. The mining has been more the rents on mining. So that has also had some exhibition to the expense.

Because of the higher team at production.

Because of the higher team per production, we did our own mining mode, which cost of which goes to other expenditure. That's why our level expenditure seems to be higher Y-o-Y basis.

Right, sir. And in terms of the incentive for the [ Kundana laser ], what would be accruing for this year with now the commissioning or we will first reach an optimum level in volume, then you will start including the sale.

Total incentives, we are expecting about [indiscernible] in Mukutban and [indiscernible].

We take the next question from the line of [ Karan Tubara ] and Individual Investor. Since this response will move ahead. We take the next question from the line of Rajesh Kumar Ravi from HDFC Securities Limited.

I just wanted to check the central market now with JP assets to be ramped up under [indiscernible] the competition will only intensify and even -- and more so I would assume the nontrade market because this is the easiest early market, any player when they ramp up of capacity, they follow to so when nontrade prices would face if competition, even rate prices generally don't see a recovery. So what is your thought in terms of pricing for the second half of this year? Q2 could be a monsoon quarter. I understand best as the industry would look to keep a flattish pricing. But central where you have the largest exposure there, the competitive intensity in H2 will certainly be much higher than what we are seeing currently. Any thoughts on that?