Birla Corporation Limited (BIRLACORPN.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Birla Corp Q3 FY '26 Earnings Conference Call hosted by HDFC Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Rajesh Kumar Ravi from HDFC Securities. Thank you, and over to you, sir.

Thank you, Raul. Good evening, everyone. On behalf of HDFC Securities, I welcome all of you to the Q3 9 months FY '26 Earnings Call of Birla Corporation Limited. From the Birla Corp, we are hosting Mr. Sandip Ghose, MD and CEO; Mr. Aditya Saraogi, Group CFO; and along with other senior members of the team. I now hand over the call to the management for their opening remarks, which will be followed by Q&A. Over to you, Sandip, sir.

Very good afternoon, everyone. And since we are speaking for the first time in the New Year, although late, but a Happy New Year to all of you. Thank you so much for joining in such large numbers on a Saturday afternoon. I understand that all of you will be in a rush to go back home for the weekend because tomorrow, anyway, it's also a working day for you with the budget. So we will try to keep the call short and not stretch it further. This quarter has been a quarter, as we all know, of mixed results, mixed outcome, mixed expectations or contrary to expectations and et cetera. So it's a bit of a mixed sentiments when we are speaking here. What I'd like to emphasize before I think the figures are before you, the press release is before you, a couple of points is what I would like to emphasize before handing it over to my colleagues who are present here, Mr. Aditya Saraogi, our CFO, Group CFO. I have Nitesh Soni. He is our Deputy Treasurer; Mr. Manoj Mehta, our Company Secretary and Compliance Officer; Mr. Kalidas Pramanik, who is our Chief Marketing Officer. You would have noted Mr. Pramanik's appointment has been extended by 2 more years. He was otherwise due to retire as per age and rules this quarter, but the Board has extended him for 2 more years. And Mr. Rajat Prusty, our CMOP, Chief Manufacturing and Projects. So we are -- all of us are here. So they will take on the questions. I also have Mr. Sandeep Asrani, who is my Head of Chief of Staff of MD's office. So they will take specific questions. I would like to emphasize on two things. Birla Corporation, you would have noticed in those who are following the company for a long time, we have always tried to stay on course of a strategy irrespective of market fluctuations or changes in the market because we believe we have a certain proven strategy, which has worked for us, and that is working for also our stakeholders. So we try to remain as steady or on course on that strategy. And what is that strategy at the core of reputation. We have limited capacity. So we want to use -- maximize our capacity utilization over there. We want to focus primarily on the trade segment, and that is B2C. We want to also focus on blended cement, which is environment-friendly cement. And we will -- given our situation, we will focus continuously on cost reduction, increasing efficiencies, including lead distance, our go-to-market strategy, distribution and building of brands. And building of brands will get translated both not just by our volume of our premium products, but also overall improving the net realization. We are a company because we have limited or clinker limited this thing. We always measure our sales, not in terms of realization for us, in fact, realization comes very secondary. What we look at is clinker realization. Per tonne of clinker, where am I getting the maximum realization. And therefore, this is a function of product mix, geo mix that is in terms of distance and product mix would, of course, imply the premium product versus popular product, but not necessarily premium product may not give you the maximum clinker realization in all markets. If we are able to sell more of popular product, if we don't want to vacate a market which is close to our factory, et cetera, where there is a demand for popular product because that will give us a higher clinker realization. So we look at this very carefully, and we have found that this gives us dividend in terms of results in any situation. So therefore, you'll find that in the last quarter, when we analyze volumes, we see many -- not only many of our peers, but also the very large players, the volume leaders, they focused a great deal on non-trade or infra sales. Some people have gone up to sell almost 50% of their volumes during that quarter and certain months in non-trade sales, whereas we consciously stuck to our strategy of focusing on trade and blended cement. As a result, our percentage of trade sales has grown during this quarter in terms of proportion, percentage of blended cement has grown and our percentage of premium cement has also grown. So if you see our results, it is a function of this strategy. I'm not going to comment as to whether you see our results in what light, whether it's favorable or how do you see with your -- but whatever we have delivered, we have been able to deliver because of this strategy. Our capacity utilization also, we have kept at our peak, including our Mukutban plant, which was a matter of concern for many of you for a long time. Mukutban plant has now is performing absolutely beautifully in a thing and happy to share if I may, because today, we have -- in this month, we have made the highest ever dispatch from Mukutban over there. So that ramping up, which has been done about which many people were skeptical. Many people had raised doubts, and we have been able to do that. And most importantly, we have been able to do that over there in that market with a large share of premium products and even in the high category of OPC-53, which wherever it's relevant because in that market, we have been able to sell that. So that has been our strategy, and that has really been what you -- what you're seeing in terms of results. So this is primarily the point which I would like to emphasize. There is -- in terms of logistics, there is -- we have reduced lead distance. In fact, our lead distance is today.

328 kilometers.

328 kilometers, which you all know is better than many large players who have a higher proportion of grinding units for themselves. Our grinding unit to main plant ratio, integrated plant ratio is lower than many people. But despite that, our lead distance has actually -- is actually lower than many of them, and we have been able to further reduce that. We have had one -- specifically, we have had a couple of handicaps against which we worked and I'd be upfront in stating that we do not have a grinding unit in Bihar. So during the period of Bihar elections, as we all know, rail movement in Bihar was hugely impaired because the railways allocated trains for passenger movement in preference to goods movement. So we're not having a grinding unit there, we were handicapped. But at the same time, while the handicap has not bothered us so much because the growth which came in Bihar, we see that the growth has been primarily on the non-trade sector. And in non-trade, Kali, how much has been the growth in December? We have seen 100% growth in Bihar?

Bihar is almost 99%.

Bihar, almost 99% growth we have seen as per our estimates has grown in non-trade. So we did not participate in that. Whatever material we took there, we've sold it in trade. And so we are not unhappy about that. In UP area, there, we have not only maintained our realization, we have been able to improve our realization. Despite the fact that many of our -- again, our peer group and competition focused heavily into non-trade. Some people, as we have seen and you know better, they have sold almost 50% of their volumes in non-trade. They have their own reasons. Some of them have got newer plants, and they had to do capacity utilization because of incentives, which they get from the state. But we stayed again because we believe in our brand, we believe in the long-term benefits of having our brands. And therefore, we do not want to wear from the strategy and dilute our equity in the market. We hold on to that. And as a result, during this period, how we've been able to increase our realization higher than others is because our premium prices, we held steady volumes -- percentage volume of premium went up. Our premium volume, which has gone up to, what, 60%, what is the number? 63%, it has gone up to. Now if you see the gap between premium and our popular is one thing. But actually because due to this whole aberration in the market and huge pressure on non-trade, the general popular segment prices went down further. As a result, the delta of our premium brand vis-a-vis the delta vis-a-vis the popular brand generally in the market, which operate at point in time about INR 30 generally that even in some places, it went up to INR 40 premium. As you all know, and this is published information or information open domain, the trade and non-trade prices during this period sometimes has gone up to upwards of INR 60 to our estimates, we have seen in the market even INR 80 difference. And that is where it required a lot of resolve, a lot of determination for us not to get swayed, stay with the strategy. And we think, therefore, that's paid us result. We had certain -- where we got affected in terms of our bottom line, apart from the exceptional item, which everybody has had to put for the labor code. We did have some continuing problems in some of our plants. A couple of them were more to do with industrial relations sort of problem and external factors. And in our own plant, we have had again, we had some breakdowns in one of our plants over there due to which in Madhya Pradesh, due to which some of our volume dispatches got constrained. So that's taken -- we had to take a hit on that account. But in terms of, as I said, in sales strategy, marketing strategy, I am personally very vindicated at the end of incident, I finished 3 years of my stint as Managing Director. I too was supposed to retire on 31st December, but the management has extended. The Board has extended my tenure. So I'm still here. Otherwise, I would not have been probably addressing this conference for you. So at the end of 3 years, the journey which we had embarked on at the beginning of 2023, I personally feel vindicated and I say this with some degree of modest satisfaction. Thank you very much. I will now pass it on to my colleagues to do a quick wrap up and then open up for questions. Anything you want to add? We can open it for questions. And as I said, everybody is in a hurry. We have had our Board meeting since the morning. All of that, we are also tired, so we will not stretch the call too much. Thank you.

[Operator Instructions] The first question is from Shravan Shah from Dolat Capital.

Sir, I have a couple of questions, but I understand that you normally don't allow, but request you to allow me. First, a couple of data points, which will be helpful to everybody. Mukutban volume for this quarter, CC ratio, CapEx for 9 months, net debt, incentive for third quarter?

Yes, we'll respond to those.

Mukutban volume was 6.3 lakh tonnes was the volume. I don't have the exact CC ratio. It will be in the range of 0.6.

0.61.

0.61.

Yes. At consol level, CC ratio would be 1.53.

1.6 actually.

1.6. Okay. Got it.

Approximately in that range..

1.58.

1.58.

Okay. Got it.

CapEx for 9 months was around INR 300 crores.

Okay.

And what else?

Net debt, incentive?

Incentives in this quarter, we have booked about INR 8 crores.

Incentive as you realized is obviously lower because of the GST correction.

Yes, yes.

And net debt?

INR 2,550 crores.

Right [indiscernible].

INR 1.47.

Yes. Sir, now considering it's good to see that in terms of our both trade and premium volume growth, there is a decent growth of 8% and 15% plus. It is only the non-trade, which has actually impacted the overall year. So now given that what we understand is non-trade prices have kind of gone up, if you can also quantify what we hear is INR 15, INR 20-odd. So in that scenario, now we will still continue with our strategy? And how do we now see in terms of the volume growth going forward for this quarter and maybe going forward, given the capacity that we will be adding Kundangunj maybe by end of this March, 1.4 million tonnes. And the rest will be coming in the FY '27 and '28 and '29. So just trying to understand how one can look at the volume growth going forward?

Saket, first of all. Shravan, first of all, yes, Shravan. Saket is always top of mind because he is always there in the questions. He sends questions before the conference, after the conference. So sorry for...

I thought I will be in your mind?

Of course, you are on my mind, top of mind because each one is in a different way. Now the point is, Shravan, we on non-trade, I will tell you, it might sound strange to you. We don't even look at non-trade prices. We don't look at non-trade prices because we -- ideally, we will not try to sell a single tonne. When we sell in non-trade, if we have to sell something, then we see whether it makes sense for us to sell it or not. So whether non-trade has gone up by INR 10, INR 15 is not of concern to us until we are unable to sell the trade volumes. So that is where our focus. That is where our sales team's focus is. And we kind of -- if they come -- somebody comes to me with a non-trade proposal, we consider it to be -- people hesitate because people will think that we think they are not able to sell trade. That's why they are coming to us with non-trade. So our strategy is not going to change on trade, non-trade because it can only change if there are situation so dramatically happens that by which non-trade prices go higher than trade or realization in non-trade is higher than trade, which we don't see happening at least in a foreseeable period. Given our capacity constraints, given that we operate almost 100% or sometimes 100% plus capacity in some places, non-trade is not at all of concern to us. Rest of it is, we are looking at overall growth of 4% to 5%, in line with what industry has done. In this quarter, although there is a surge in demand, but it is not an upsurge or it is not like you have a very, very buoyant situation this quarter. We are looking at in this quarter with greater interest volume, we know will come. Again, our situation is slightly different because we are already selling enough. Our focus is to see where the prices are. We hope the prices will improve. And in that context, we sometimes look at the non-trade to see if non-trade is improving, we hope the freight prices will also go up. So that's broadly the strategy, Shravan.

Yes. Lastly, sir, CapEx now for full year, last time we said INR 800-odd crores. So -- and possible for next year, how much one can look at? Because both our expansions, roughly INR 4,400 crores is the announced CapEx. So if you can have a broadly how...

Shravan, you know us better. We don't -- we look at the present. That is what we think matters. We never talk about.

On a year-to-year basis, we give a guidance. So for the next year, we will give the guidance in the next call.

Okay. So in fourth quarter, how much CapEx, sir, more?

We already said that you were not paying attention.

It will be less than the earlier guidance that we have given. Okay.

Next question is from Pathanjali Srinivasan from Sundaram Mutual Fund.

General doubts I have, like your unit cost of production has gone down quite a bit compared to the last year. So some of your initiatives seem to have been working. There is just one doubt I have, though, is that our share of premium has gone up. Our share of trade has gone up, but our profitability is not reflecting that part because our cost reduction quarter-on-quarter is about INR 200 from INR 24 to INR 25, but EBITDA has gone up by INR 160. So what am I missing here?

Essentially, the pricing issue is what you are missing because of Central region, et cetera, prices have been depressed. Only area where price was slightly decent was North. And that is about less than 1/3 of our volumes. And Maharashtra also prices were -- are not there. So that's the only thing you are missing. So despite our increasing proportion of blended, et cetera, we couldn't -- we obviously couldn't make up for...

Loss in realization.

Loss in realization. And we have said that in some cases, some part, we have also lost a little bit in volumes because of issues. So that is what has happened. But aren't you happy overall with our -- what realization and the premiumization and our focus on blended?

Sir, your journey has definitely been very encouraging because you've grown more on trade and you've increased share of premium. But I'm just trying to see the -- if it comes through in numbers, then I'll be much happier. So that's...

That is coming through boss. I think the one error you people make is we still and we are not at all shy about that. We still have a popular component in our sale. We are premium as our definition is much, much higher than anybody else who is talking of premiumization now, certainly in the -- our category. But we operate in popular segment and that we would continue to do. We don't want to vacate that space. We have got heritage brands there, strong brands, legacy brands over there. And we -- as I was explaining earlier, we find in clinker realization in some places, we get very good clinker realization in our popular brands. So we don't want to vacate that. So we will continue to look at that. And so therefore, in a combined way, the problem arises if you were to just simply see us as a premium company and compare us with others. But again, the people who are selling premium, I don't want to take names who were earlier at a certain level, you will see from the results, you'll get an idea of how the -- even the B2C market has moved during this quarter.

Sir this quarter, I'm quite happy with your earnings number, sir. Only thing is the volume, you mentioned that there was some bit of challenge in one of the plants. Is there any possibility? Can you quantify how much impact in volume terms we would have had because of that? Like how much...

We would not like to do that because it's a combination of a lot of things. As I told you, one plant, there was a little bit of technical problem. Another place, we had some sort of an IR problem. And another place, it was more of logistics-related issues, not logistics issues, but all that. So it's a combination, and this is part of the game. So I don't want to separately spell it out.

The next question is from Harshal Mehta from AMSEC.

Two quick questions from my end. Firstly, on pricing. So what you mentioned that competition is intense and price increase might be limited going ahead. So is this across all our operating regions? Or is it mainly to do with the central region? That was one. And when do we expect this competitive intensity to ease out? Also, if you can just help with how our spot cement prices versus the average of Q3 across all our regions in both trade and nontrade. So that was on pricing. And secondly, on market share. So in this quarter, like you said, we have lost market share, and that is particularly on the non-trade side as prices remain weak. So what gives us the confidence that we'll again be able to take in a lost market share as prices recover? Yes.

See, first of all, let me start with the market share. I don't see the relevance of market share in terms of non-trade. We are not in that space at all. We look at our market share in the trade segment and the B2C segment. And there, we don't think we have lost market share. In fact, we would have improved market share in certain places by a couple of basis points. And that is what we focus on because our concerns are very different. Some people have set up newer capacity. They're operating at a very low CU. I'm operating at 100% CU, capacity utilization level, somebody who is operating at 55%, 60%. They will sell non-trade because if they have set up also units where basis of incentive, they would like to sell more and get it. As a result, that's why you have seen how non-trade prices shrank in the last quarter. So we are not in that game. And we are not even worried about -- as I said, I'll be very happy if my market share in non-trade is 0 and I'm selling everything in trade. So it's not -- so that's not the game which we are in, and we are looking at purely on market share. So therefore, I was seeing some of the commentaries of other analysts who have written about market share loss, et cetera. Sorry, we don't see market share in that view. We think the relevance of market share is essentially in the B2C. And I come from an FMCG background. Therefore, for me, that's what makes sense. You never look at industrial sales, et cetera, and think of market share there. So that's the point. Spot prices, I don't think that will be indicative to say in any specific market. We believe that our -- in terms of our -- what we call our premium category, we are not only at par, some places, we may be a couple of -- between INR 2 to INR 5 higher than the top brand in that category. By premium, our definition is, frankly, we say the A category player. The second player in the A category, our belief is their pricing position is diluted significantly in most key markets. So there is one player with whom we kind of compare. And from them, we're either at par or, as I said, a couple of rupees higher in some markets, maybe even INR 5 higher. When you come to the popular segment, that's the B category segment, we firmly believe from the general B category status, our prices are at least INR 10 higher than the B category players in -- where we have our heritage brands or legacy brands I'm talking about. Heritage and legacy to be spell it out for you, is Samrat in Central zone. In the North zone, it is Chetak. These are our heritage brands. We sell some amount of those brands in the Maharashtra region, but that's where it is not a heritage brand. That's a popular brand, so I'm not considering there. In Maharashtra, our focus is purely on Perfect Plus. We are a small player in the East, that is West Bengal. And there, our unique plus has done extremely well. We sell in a very limited geography close to our -- we don't want to spread thin. We don't have those volumes. That has done well and gives us excellent clinker realization because it's a slag cement, and we are able to do that. To reveal a secret, I'll tell you, we -- initially, people had laughed at me when I had said in some of these conference calls that we may find it profitable if we have excess clinker in Mukutban to bring it all the way to Durgapur. We are actually finding that is true even now, okay? So -- and that's partly because our clinker cost in Mukutban is very, very competitive, one of the best in the industry. So that's broadly the position, how I will answer your question. May not have satisfied you totally, but that's all I can reveal at the moment.

Just on the competitive intensity, if you can just help me like when do you expect that to ease out?

Come again?

Competitive pressure...

Competitive intensity, when do you expect that to ease out?

Competitive intensity. See, competitive intensity for us, the only area of competitive intensity issue is in Central. But Central, again, the competitive intensity, there are two parts to it. We were concerned about how the competition is going to take us on in terms of the Trade segment. We are finding for whatever reason or the people whom we were expecting, they seem to be more concerned about their volumes and the volumes they are trying to get from non-trade. We thought they will probably try to get it by deep discounting in the Trade segment, but they seem to probably find it better to sell non-trade or they have not been able to penetrate the trade market or create their own distribution network so well, acceptance of the brand and their brands in those places in the trade network is probably not as good. So they're not getting similar amount of traction. So they find it much easier to sell in non-trade. So that per se is not affecting us. Really the point of reckoning is I told you without naming them, some of the category brands, and we try to be over there and go on consolidating our share over there. In terms of competitive intensity, in the North, we are a very small player. We've got just 6% or 7% market share there. So competitive intensity does not affect us in that way, except for the price levels in the market. Similarly in the East. In the Maharashtra, there, again, overall, if you see competitive intensity doesn't affect us that much, except in our core market of Vidarbha and Khandesh, that area. Their competitive intensity and there has been some changes which have happened over there in recent times due to some consolidation factors, brands have changed hands. Even existing brands have tried to do some kind of rationalization. They're trying to do brand rationalization, et cetera. So those have changed the dynamics in those markets, but that has actually worked to our advantage.

Next question is from Prateek Kumar from Jefferies.

I have a question on your next round of expansion, what are the time lines you're looking at for the next round of clinker expansion in your central region?

Essentially, we are looking at, first of all, we have already said the Kundangunj Line 3 will come on stream in this quarter itself. And then we are looking at Maihar's Line 2, essentially, that will be FY '28 is when we are looking at it. And in parallel with that, we come up our grinding, first 2 grinding units.

So that will take our total capacity to 24.2 million tonnes by FY '28. And by FY '29, we plan to take this capacity up to 27.6 million tonnes.

Okay. Sorry, is the '28 to '29 bridge of 3 million tonnes?

Sorry.