Birla Corporation Limited (BIRLACORPN) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Birla Corp Q2 F527 earnings conference call. As a reminder, all participant lines will be in the lesson only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now have the conference over to Mr. Rajesh Ravi from HDFC Securities. Thank you and over to you, sir.

Thank you, Steve. Good afternoon, everyone. On behalf of HDFC Securities, I welcome all of you to Q2 and H18527, Earnings Call of Birla Corporation Limited. From the management side, we have Mr. Sandeep Ghosh, MD and CEO, Mr. Aditya Saragi, Group CFO, and other senior leaders from the team. I now hand over the call to Sanjeev Gursa for his opening remarks. After his presentation concludes, we'll start the Q&A session. Over to you, sir.

Very good afternoon to all of you. Pleasure connecting with you in this festive season. Well, everybody is gearing up for Diwali. Bombay, I suppose, is already on a celebration note. As far as we are concerned, I don't think this quarter's results are exactly celebratory. We know it is modest and subdued, largely due to factors which everybody knows, especially on the cost side. Everybody has been hit by the fuel prices primarily, and we have no exception in that. But where we are probably affected a little more is our main presence, our very substantial presence is in the central region. And in central region, again, we play much more on the trade side, which all of you know, and the prices there have been depressed. I was just checking, we are after four years since some major acquisitions and mergers happened, consolidation in the industry, and thereafter also for a period of more than a year or so, there have been other consolidations which took place. And all pundits believe that consolidation is going to be healthy in terms of pricing for the industry. But we have not seen that happening, especially in the regions where we operate. We haven't seen any such impact of the consolidation. In fact, that has kept the prices soft, in particular, also, not just in the popular segment, but even in what is called the premium segment of the A category. Some market leaders who were earlier commanding a premium over the rest of their peer group have diluted their price positioning, and there is a continuous dynamic tension in terms of retaining market share, Due to which the trade prices have not shown any significant increase, despite even in months when there has been fairly healthy demand. So this does affect us because we are, again, the cost of reputation. We are very, very skewed towards trade sales and blended cement sales. Where people have the headroom are in non-trade. We operate, as you know, right now this quarter we operate 85% capacity utilization, but we go up to 1995, whereas many of our peer group or larger players also operate below even 70% capacity utilization. And they are all having more expansion plans on the anvil or in the pipeline. So there is, therefore, they do have an anxiety to garner market share or retain market share. But this plays out largely in the non-trade segment. But the non-trade segment, okay, there was some degree of rational behavior in the last quarter towards the end, due to which the non-trade prices, which had really plummeted, there was correction. I'm talking primarily of central India because that's where our major interests lie, but non-trade prices increase doesn't really help us because we continue to dominate or be skewed heavily towards the trade sector. Some amount of increases, we are seeing some uptick in October, but I wouldn't call them very significant uptick, and I wouldn't really call them, you know, very solid increases, which may not slip if the market conditions change. We will come to that later. So that has been our basically the bane for us, whereas we have continued within that what we can do in terms of increasing our premiumization, not just in this core market, but also in markets where our premium percentage is low. So, for example, in Rajasthan, we have increased our premium percentage there. We have in Maharashtra, where we are operating, we have consciously cut down on leads and trying to focus and gain our trade market shares or even non-trade market shares in proximate markets of Vidarbha and Khandesh to get it up there. So we have tried those mixes. In terms of costs, for some factors, our costs increased while common with other people. Certain places we benefited because of our captive coal mines ourselves. The second captive coal mine, Bikram, is on stream. From there also, we are getting captive coal for our things. But we had some carry forward of shutdowns in that unit due to which we had to buy some amount of clinker from third party, and the clinker cost hit us. So you may find that our cost increase relatively is higher than some of the other industry players, but that's largely the impact of purchase clinker, which we had in this particular quarter. This is broadly, I think, the overall context I will place, and I'll come back to you towards the end to give our view of how the market will behave, how we are seeing the next two quarters, the last two quarters of the year, or H2 playing out, and state-wise view we will share with you. But I will now pass on the mic to my colleagues, first Aditya Sarogi, our CFO, youth group CFO, then Rajat Prushti, and we have a new head of national sales. Mr. Kalidas Pramanik has taken early superannuation, but he remains attached to the company in consulting capacity, but in his place we have Mr. Tamal Pal, who was our strategy head of the company. Tamal has been with our company for a long time, but before that also in the days of the RCCPL, the Reliance days, he has worked for Reliance. He's a graduate from Indian School of Business, Hyderabad, and he's now taken over this role, and I wish Tamal all the best. He's got into the groove already in the last couple of months, and he's on it. And Tamal will also speak to you, giving some of his, you know, views or early impressions of the market. Mr. Sarogi, please.

So, the inclusion cost was primarily given by the escalation in fuel prices, where both the prices of pet cove as well as domestic coal sourced rice. Thank you. For supply two sectors other than power sectors. So that created a huge gap between demand and supply, leading to unprecedented increase in domestic coal prices. And apart from the coal prices, the other heads that we saw bigger increase was the increase in the cost of patin materials. So, these were the two heads where most of the issues of cost were seen. Going forward, as we see, at least in the near term, we do not see any response on both these accounts. The fuel prices we expect, in fact, the international prices are expected to go up even further from the current levels, and as far as the domestic fuel is mentioned, once the winter sets in, and there is a reduction in the power demand, and the supply improves by Coal India subsidiaries, I think, That will bring down the prices of domestic fuel. But on the whole, at least in 2-3, we are expecting the coal prices to increase from 2-3 levels as well.

Good afternoon to all. This is Rajat here. As rightly said by MD Sar and Sarogi Sar, last quarter, there was more of an availability of the coal also. In fact, we had to plan many things to ensure that with the continuous operation of the plant because flood situation in many of the mines of Coal India and especially in the entry part, a lot of challenges were faced and we were able to see that the plant runs without any issue and also optimize the cost. So, our two things, the three front actions which has helped. One is enhancing the production from our Bikram coal, which just started last quarter, and continuously we are focusing to increase the production also in the Bikram, and using part of the coal in the other systems like apart from the CPP to kill, and also optimize our fuel mix and our mix, all these things in the plants to ensure that we how to contain the The second one is the renewal power, where our continuous focus was there. Last quarter, it was 32-plus percentage, and going forward, we are planning to reach to the level of 45% in the next one year time, for which already many projects or many activities are being planned. And third thing is on improving the AFR uses also, which already our focus started on many plants to see that we hope we can really optimize our fuel costs. And going forward, our captive mines use will further increase, not only for our MP plants, but for Rajasthan plants also, based on the fuel pricing and the overall optimizations. So, overall, I just want to say that this is a very difficult time for all the manufacturing units, and everyone put their best effort to see how we can contain our cost, and going forward, what are the initiatives which I mentioned will continue to drive or reduce the cost.

Thank you. We will now open the house for question and answer questions.

Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handset when asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Your first question comes from the line of Shravan Shah with Dalit Capital. Please go ahead.

Hi, sir. Good afternoon, sir. Thank you for the opportunity, sir. A couple of questions. So, two, three things, but everything is kind of interlinked. So, now, given that all the capacities, the expansion plans, 6.2 million tons to come in FY29, So, how the volume growth will come? Obviously, last time we guided 20 million ton for this year, but for even FF28, that is one second given the cost increase and whatever the price cycle is happening, that is mostly in the non-trend, which you highlighted. So, given that scenario, how do we see the second half in terms of the price increase for us and the cost, so net-net, the profitability, do we see this 482 per ton EBITDA per ton which we achieve in Q2 or could be even the similar or lower in third quarter also?

There are a couple of points before handing over to Mr. Sarogi. You know, a lot of it is crystal ball gazing. So the cost part of it, I think Mr. Prushti has already commented, Mr. Sarogi has commented. A lot of it, as you know, is linked to the international situation, which is also anybody's guess. It's very unpredictable. We don't know how it is happening. What Mr. Sarogi talked about, the domestic power and coal situation, that is one degree of prediction which we can make on the cost side. While we will do better than our best to increase our captive coal, as well as see how we ramp up our renewable energy and alternate fuel consumption to bring down the power cost, especially over there. So that is going to happen on that. Now, as far as you're talking about pricing, I would think that there is, you know, here is, as we say, the spirit is willing, flesh is weak kind of a situation. Because I think today, the manufacturers are all come to a position when they would like to have a price increase. But a lot of it is a function of how the demand also shapes. Now, there are many variables on the demand side, which, again, I wouldn't like to make any astrological predictions. There is, we know today, although the monsoons behind us, but monsoons behind us is left behind, poor monsoons has left drought conditions in many areas, even where we operate, especially, for example, many of you are sitting in Bombay. You would know the situation in Maharashtra. Some areas are very, very drought affected. Rajasthan also, there are parts where there is drought. So there could be an impact of drought, and the drought impact now, how it is going to play out, even in the last quarter, we cannot say. Then there is, Mr. Sarogi was alluding to major election in UP, which is our home ground, and elections when it comes, sometimes initially you get a boost over there, But once the model code of conduct and other things come into play, we have seen a softening of demand at that time, because especially in the non-trade sector, which obviously in turn will affect the trade sector. So those are headwinds we are cautious about. In some areas earlier, you know, North Bihar and parts of Eastern UP, there was effect of floods that should recede. Hopefully Bihar will look up. By and last, despite the drought, Rajasthan should hold Gujarat also. I think there is a resurgence of the renewal of the infrastructure segment, so Gujarat also should hold up. So, with those, because I think all the players have been affected, so everybody is going into the second half with having slipped in their ambitions for the first half. There will be general willingness for people to correct, but how that happens largely would depend, A, I think, on the demand situation in the market, And most importantly, the large players where, depending on their strategies, we keep reading people talking about, you know, increasing or retaining market shares despite whatever situation. So if those things continue, the ramifications on that on prices, not just for us, for the industry at large, is difficult to predict. And we cannot be like ostriches putting our head in the ground to say we will continue to do whatever, irrespective of what the big brothers or big boys do in the market, that would be foolhardy. So, we would give a cautious forecast in that direction. Mr. Sarohi will comment to the EBITDA, but we don't make very specific.

We don't make specific comments. And so, at the cost, I think, definitely, the cost, I say, in two, three sequential, that to give you a sense, 12 cost per million tarry was 1.64 in, 1.81 in 2.2. And in 2.3, we expect it to be in the range of 1 to 1.05. So, that gives you a sense. So, on 2.3 accounts, we expect the cost to go up by about 100€ a ton.

Go to 2.05.

So, on account of fuel itself, we expect the cost to go up by about 100 rupees a ton. So, the costs definitely are going to go up in Q3 on a sequential basis. And as Mr. Goh said, all of us are trying to pass it on to the customers because as it is profitability, there is nothing to talk home about. So there is a clear attempt on our part to pass it on to the customers, but then we can't be different from the market.

I will stick my neck out and say something to Mr. Sarogi's point. The cost increase of 400, etc., which he is talking about, that may get recovered in the high season. But what we are not sure is the lag, what people have lost earlier in terms of the EBITDA, how much of that will get recovered is difficult to predict. About 100 rupees or so. Yeah, that you are talking about, say, between 5 and 7 rupees or 10 rupees per bag, that might happen, but others, beyond that, there will be several other factors, and I repeat, it depends a lot on the behavior of large players.

Sir, just to get just the clarity, so 100 rupees fuel increase that Sarugisar is mentioning in third quarter QOQ, what else could be the case? And for us, in terms of till now, the price hike versus the 2Q average would be how much? 5-7 odd rupees?

You are talking in October? Exit would be around that, but average may not be of that level.

Okay, and what cost extra, apart from fuel, would be hiring 3Q?

So, we are ramping up the production in our captive mine different coal blocks. And there also, we have to understand, in 2-1 and 2-2, what we got was low-grade coal, which were able to use only in power charge. Now, we are going to extract some better grade coal which we can use and build also. So, that can actually substitute much higher cost of fuel. So, all that attempt and all that effort are going on, and we are sure we will be able to get some positive results.

Thank you, sir. I have questions. We will come in to you. Thank you, sir.

Thank you. Let's move on, please. Patanjali?

Oh, yes, sir. The next question comes in the line of Patanjali Srinivasan with Sundaram Mutual Fund. Please go ahead.

Hi, sir. Thank you for the opportunity. I have a couple of questions. So, firstly, you mentioned that in your press release that heavy rain can come up here cold markets, but you also mentioned that there is drought in some of the other markets. So, how do you see this affecting us? Do you think this will offset each other in terms of the demand?

I'm excited to have Patanjali, sir. The voice is not coming clear. Could you please come closer to the mic?

Yeah, yeah, yeah.

So, Patanjali, the point is, you're asking the question about the weather to the wrong person. This is to be asked to the Meteorological Bureau and the Weather Watchers. We can only look at what's happening in the marketplace and how it is going. I can't really predict about the drought.

All the market is going to expect it to get affected by drought.

Yeah, that's what we are hearing, but we don't know whether exactly how much of the drought will happen or not, and floods which we said was only parts of the thing. As you know, because of the Nepal overflow and things like that, Nordic Bihar and eastern UP, which borders those areas, they were affected in the beginning. And thereafter, also, there have been some unseasonal rains, etc. But that's behind us, I think, largely. We'll have to see if the drought plays, and drought will be playing in certain specific areas more. We have a clear visibility of drought today in Maharashtra, where in some places I am told a water supply is happening once a week. Those are not really our core markets. Somewhere towards western Maharashtra, those are the situation, Aurangabad, etc., which we are hearing. South Rajasthan, I was there earlier last week. I know, again, there is water scarcity. But drought has one immediate impact and one carry forward. There are all these predictions about this El Nino and having a relatively warmer winter, etc. That's really beyond our remit to comment.

You got it, sir. I thought your weather forecast feed would be better than mine.

Isn't it better? Isn't it better?

I think so. And for captive coal, I wanted to know how much of a fuel requirement are you expecting to meet with captive coal this year? And what would be the cost differential between spot today and where we will be able to, like, get from our captive mines?

See, in this year, we expect about 15% from captive pole stocks. And the cost is quite dynamite, because domestic fuel prices are also very dynamite now, and between our two, the cost structures are also dynamite. But the important thing is that the grade of score you like to get is very, very consistent, so that gives us an advantage in qualitative terms also, but clearly there will be a significant benefit in commercial terms, financial terms also.

Any rough cut number you could say, sir, in terms of terms of 10% cheaper than what market price would be? Would that be a fair advantage? Thank you so much.

Thank you.

Thank you. The next question comes from the line of Harshal with Asian Market Securities. Please go ahead.

Thank you very much.

Mr. Harshal, could you please use your handset?

Is it better now?

Yeah, thank you.

Okay, okay. So, three questions from Mayan, actually. First, in terms of demand, so we expect infra to be key growth for demand, and we are focusing more on the trade segment. So, how do we expect our volume growth, you know, to pan out versus the industry? That was one. Secondly, in terms of pricing, so what is the costum of price hikes across our core markets in trade and non-trade in October? What is the pricing cap between trade and non-trade? And what is the outlook on the near-term pricing, given that the last players are focusing on

We have said, you know, I think our overall assessment, we cannot really predict more than what we have already said so far in terms of, you know, how the market will behave. There are so many variables as I talk to you. There is the weather, there is the elections, everything taken together. So beyond what I have said on volume growth, there is not much to add. On cost side also, it has been discussed pretty much at length everywhere. And the non-trade segment, what I saw, I told you that in UP, there may be slowdown post the election announcement around that time because of extra things, whatever ongoing projects at the central level may go on. In Gujarat, we are seeing things happening. Rajasthan, also things are happening. But it is not that it is driving huge amount of growth in those areas. It's a healthy demand of non-trade has helped the market prices stabilize. So the non-trade prices, which were earlier sinking, has come up to a reasonable level. They have been able to increase prices of OPC in those markets. So, those are stabilizing factors. But, again, to say exactly how the non-trade everything will behave, we can't say. And much of it, as you all know, is linked to the overall economy.

In this quarter, about 1,000 was imported to a primary pet coat and imported coal. About half of it was domestic purchased coal. One captive coal was around 13% and 4% were AFR.

Thank you.

Thank you. The next question comes from the line of Girajare with Nirmalpam. Please go ahead.

Thanks for taking my question.

Am I audible? Hello. Sir, could you please use your handset? Your voice is coming very low.

Am I audible?

Yeah, please go ahead now.

Yeah, thanks for taking my question. So, I have a few data points I wanted to understand. First, I will take the data point. If you can help me out with what is the total lead distance this fighter and Mukudban lead distance as well.

Lead distance was 336 km and Mukudban was 411 km.

Okay, so sequentially Mukudban lead distance is because he asked for it was 400. Yeah. Yeah. And what was the Mokotban volume?

Mokotban volume and this was 6.5 lifetime.

6.5 lifetime.

Yeah.

And yeah, coming back to my main questions, she just wanted to understand the upcoming capacity in FY28 or Sir,

we are maintaining our earlier guidance in terms of the time-line infrastructure.

Are these 100 rupees per ton, you know, incremental impact of a fuel cost? With this, we have already factored, factored the, the, the, you know, the, the capital mining things or in there? Yes, yes, yes, yes. And can you help me out, what is the packaging cost of this time on part-time basis?

So, it has reduced sequential latency, there's 269 last weather,

So, I told you that data has actually hit our profitability because we had a carryover of shutdown, which is a planned shutdown which was delayed in the previous quarter. We have carried it into this quarter. So, therefore, we had to do some clinker purchase, which was also affected our bottom of the market. Bottom line, as I explained earlier, why are cost increases higher than some of our…

Bottom line in terms of margins. And then overall, that is, of course, that contributes to the bottom line, but on a personal basis, profit margin. Correct. Thanks for clarifying.

And what could be our capex for FY27, 28, and if I may ask for FY29? Thank you, sir. Thank you very much.

Thank you. The next question comes from the line of Saket Kapoor with Kapoor and Co. Please go ahead.

Yeah. Namaskar, sir. Hope I'm audible. Yes, sir. Yes, sir. Sir, firstly, with respect to the incentives from Mukurtan and I think so now Kundangan being also on stream, what have we accrued in terms of the incentives for the quarter and first half and also in terms of the closing balances and the actual receipts from the government?

So, incentive accrued in this quarter is about 30 crores, and closing balance is about 545 crores. In this quarter, I will give you about any incentive.

Okay, and for the first half, how much money we have received?

First half, total accrual will be 63 crores, total accrual.

And the closing balance, 550?

545.

Sir, when we look at our net debt number, that has shown a reduction. So, in terms of refacing the advance with cost and margins taking a hit, how are we able to manage to lower the borrowing, both for the non-current as well as the current, both long-term and short-term? And we have also done capex to the tune of 300.

On a net basis, our volume has actually gone up. Okay, sorry. Yeah, it has gone up to 2,004 and 72 crores, compared to 2,000 crores as of June. So, it has gone up on a sequential basis, that's more because of the working application requirements. Thank you.

It created a dent on the properties. This is the reason why our standalone numbers had taken a greater hit.

No, that is not about standalone numbers. The reason why the standalone number looks worse than the control number is probably because of the fuel mix. In our RCCPL plant, we have got the mines, Siyal Bugi mine, so our last part of our sewer requirement is catered by capital mines, and the other integrated unit that we have in Maharashtra, there we have got a considerable linkage pool, so there the prices are fixed, and there most of the deliveries are made by road. So, those deliveries were not affected during the monsoon. So, major impact was in one, the petro crisis, and secondly, the price of domestic coal in the central region, where there was a lot of flooding in the mines, and because of this preferential allotment of waste to power sector, the supply was squeezed to the non-power sector. So, it's mainly because of the mix between the RCC-based bank and VCL bank that there was a major difference in the cost structure of the two companies.

So, this will wither out for Q3 and Q4 onwards?

Oh, Q3s will not wither out. In fact, as I explained, it is going to go up. In 2-4, as far as the petco crisis are concerned, I don't think we are seeing any respite. It might even go up or may remain as G-12. But in terms of the domestic fuel prices, we do expect them to come down in 2-4.

Last thing pertaining to one of the cases with the West Bengal government, wherein they changed the industrial law and our receivables. We have put a case in the High Court. Any update on where we stand in terms of the incentives that were cancelled by some changes made by the previous government?

The matter is still to this, but as you know, there has been a change in the regime, and we are hopeful that this current regime will be more favorably inclined toward the industry, and will not do anything which discourages the industry from making fresh investments in the state.

Have you made our case there, sir? We had pointed out to them that this was how it has affected us, even after making the requisite investment.

Yeah, so, we have made our case in the first time.

Everybody has explained this, not just us. There are also people who are affected in much bigger numbers than ours. Everybody is the same thing. It's nothing that we have to explain separately.

And lastly, just to make a brief understanding, since the external clinker sales were at a higher cost, so are those companies who were selling clinkers to the market making higher profit? Just wanted to understand why are clinkers priced higher than the equipment realizations?

How do we understand? No, higher clinker, we obviously will not buy clinker at higher than our rail. Only if it makes sense for incremental profit do we buy, which may be higher than our own cost of making clinker, but if we are able to sell our cement at a price higher than what clinker we are buying, only then we will buy. We will not obviously buy to keep volumes at a loss. Now, when others are selling, how do we know what is their cost, so whether it is increasing their profit or not profit, that you have to see from those companies which are showing clinker sales.

We have to appreciate the EBITDA or the profit numbers are not bifurcated for clinker sales and Q&A. For companies who are selling clinker, they are able to improve their bottom line As well as top line, there is a denominator in terms of the volume of streamings remains fixed. So, optimally, we are able to show a better profit in terms of the data per time because of the sale of streamings. In our case, it is terrible.

Right, sir. And lastly, on the juice part of the theory, sir, this quarter number as well as quarter one was boosted by, I think so, So, one of the revision in the prices, so that is directly flowed to the bottom line, that 6 crore impact. Right, sir? True.

True. Yeah, expecting the... Just in the previous quarter, whatever you received, it flowed to the bottom line. Yes, yes, yes. But at the same time, what is also flowed to the middle line is the high cost of jute, which is the unprecedented level of jute prices. Being in Calcutta, you know that better than us.

Right. So, actually, we have spoken about modernization, introduction of value-added products, and giving the JOOT, our JOOT entity unit, a total makeover to profitability. So, what is our understanding since now, the availability of JOOT may be much higher than what it was previously, and the prices might have also corrected.

It is profitable, but our thing is to take you to the next level, the next generation. But that is going to take time because it's a function of all things, developing the product, developing the market, developing the go-to-market strategy, all of it. That will take time, but we are proceeding as per plan, and we are hopeful of making progress Yes, because the government is also, now central government especially, is very interested in promoting natural fibers, so the Ministry of Agriculture is working at the farm level and encouraging research to come up, and then the textile ministry is equally concerned about promoting geodextiles and fabric, and now that West Bengal has got a government which is in sync, Thank you. Thank you. Thank you. Thank you. For us to spend a disproportionate time discussing this as well.

Yes, thank you, sir. And all the best, and to Dipavali to the team.

Thank you. Happy Dipavali to all of you. So, I think we can now close the discussion with wishing happy Dipavali to everyone. Shravan has already asked the question, so we don't need to do another follow-up. Thank you very much.

Thank you, sir. Thank you for joining us, and you may now disconnect your lines.

Thank you.