Fundamental Analysis of Birla Corporation – Future Plans & More
Fundamental Analysis of Birla Corporation: Cement plays a very important role in national economic development. Every global economy looks very attractive to investors, with massive capital expenditures to build sky-high buildings and world-class infrastructure, each of which requires cement as its most basic component.
In this article, we will conduct fundamental analysis of Birla Corporation, a cement company, and analyze its business, financials, etc.
Today, India is an economic powerhouse, fueled by massive capital inflows to expand the size of the economy. Keeping this in mind, let us take a look at a cement manufacturer that is planning Capex in association with Indian Economy-Birla Corporation.
Let us also use fundamental analysis of Birla Corporation to understand how the cement industry is performing and how it is benefiting from India’s economic boom. Let’s explore.
Fundamental Analysis of Birla Corporation – Company Overview
Birla Corporation is the flagship company of MP Birla Group. It was established as Birla Jute Manufacturing Company in 1919 by late Mr. Madhav Prasad Birla. Now, let’s do a fundamental analysis of Birla Corporation to learn more about the company. In 2016, the company converted from a jute manufacturer to a cement producer.
It purchased the cement arm of Anil-Ambani-led Reliance Infrastructure. trust Cement Company, Rs 4800 Cr. With this acquisition, Birla Corp. takes ownership of 10 million tonnes per annum (MTPA) of manufacturing capacity, expanding its total capacity to 15.6 MTPA.
The company currently has 11 manufacturing facilities across 8 locations, with Birla Corp.’s total cement production capacity reaching 20 MTPA. As of FY23, Birla Corp., together with its subsidiaries, reported production of 10 million tonnes of clinker and 16 million tonnes of cement. The cement plant also has its own power plant. Birla Corp. produced 20 million units of energy from these plants, most of which came from waste heat recovery systems.
Currently, the company generates 94.53% of its revenue from cement sales, while jute contributes only 5.46% and the remaining 0.01% is earned from the steel casting segment. Birla Corp. has a jute manufacturing capacity of 52,631 metric tons and iron and steel casting capacity of 3750 metric tons.
Industry Overview
India is the world’s second largest cement producer with an installed capacity of over 600 million tonnes (MT), accounting for approximately 7% of global production. Cement demand is primarily driven by the housing sector, which accounts for nearly 65% of the total demand.
India’s cement production reached 374.55 million tonnes in FY23, registering a growth rate of 6.83% since FY22. Cement demand grew at a compound annual growth rate (CAGR) of 5.65% between 2016-22. The country is expected to continue to benefit from abundant available high-quality limestone deposits.
There are a total of 210 large cement plants in India, of which 77 are located in Andhra Pradesh, Rajasthan and Tamil Nadu. About 32% of India’s cement production capacity is located in South India, 20% in North India, 13% in Central, 15% in West India and the remaining 20% in East India.
The Indian cement sector is expected to expand its production capacity at a compound annual growth rate (CAGR) of 4-5% over the next four years by the end of FY27. FY28 is expected to begin with an installed capacity of 715-725 MTPA. India’s cement production is expected to grow by 7-8% in FY24, driven by infrastructure-led investments and large-scale residential projects.
This year has seen unprecedented increases in fuel prices due to geopolitical events. The industry tolerated price increases but was unable to fully offset the sharp rise in input cost drivers. As international oil prices cooled after peaking in the first quarter, margins improved in the second quarter.nd Half of the year.
In this way, the fundamental analysis of Birla Corporation describes the industry overview, its sector, and various other information about the company.
Also read…
Fundamental Analysis of Birla Corporation – finance
Sales and Net Profit
Birla Corporation reported total revenue of Rs. 8682 Cr in FY23, up 16% from Rs. 7461 Cr in FY22. Revenue growth has been somewhat inconsistent, with a 2% decline in FY21 and slower growth of 6% in FY20. Since FY19, Birla Corp’s revenue has grown at a CAGR of 7.3%.
The company’s net profit crashed by a serious 90% from Rs. 390 Cr in FY22 to Rs. 40 Cr in FY23. The main crash in profits was caused by rising fuel costs, which increased by 15%, as well as initial costs associated with commissioning the new Mukutban plant. The company’s net profit has fallen sharply from FY21’s high of Rs. 630 Cr.
Now we have looked at the company’s revenue and net profit using fundamental analysis of Birla Corporation, which can be useful to investors and traders.
profit
Birla Corporation reported an operating margin of 10.14% for FY23, down 543 basis points from 15.57% in FY23. Rising raw material costs continued to pressure the company’s margins from a high of 20.3% in FY20.
Meanwhile, net margin fell 481 basis points to 0.46%. Birla Corp was already a single-digit net margin company, which shrank to less than 1% in FY23.
rate of return
Return on equity deteriorated significantly from a high of 15.93% in FY21 to a five-year low of 0.88%. ROCE also fell to its lowest level from 7.86% in FY22 to 3.77% in FY23. The sharp decline in profitability has collapsed Birla Corp’s already leveraged business, leaving it barely able to break even this year.
debt analysis
The company has continued to reduce its debt-to-equity multiple from 1.15x in FY19 to a low of 0.86x in FY23. The growth rate of long-term borrowings in FY23 compared to FY22 was only 1.3%, but the company’s financial costs increased by approximately 40% due to a surge in interest rates.
Due to declining profitability, the company’s interest coverage ratio plummeted to 1.15 times. We need at least 1.50x EBIT as a safe bet for interest expenses.
Fundamental Analysis of Birla Corporation – Key Indicators
key indicators Fundamental Analysis of Birla Corporation They are listed below.
Fundamental Analysis of Birla Corporation – Future Plans
- The jute production cost was expected to increase in the coming years due to lower than average jute production. Therefore, the company plans to reduce its exposure to government mandates and shift towards exporting food grade jute to various countries.
- Next year, we plan to maximize efficiency by expanding our market presence in Gujarat, South MP and the areas surrounding the Mukutban plant.
- Birla Corp aims to achieve a production capacity of 25 million tonnes by FY27 and 30 million tonnes by FY30. We plan to distribute Rs. 700 Cr will also be applicable in FY25.
- The company’s captive mine, Vikram Coal Mine, is expected to begin production in the second quarter of 2025. This mine, along with two other dependent mines, is expected to provide 60% of Maihar Line 2’s enhanced capacity.
conclusion
In conclusion, from a fundamental analysis of Birla Corporation, Birla Corporation may appear to be a diversified company with operations across jute and cement, and is primarily a cement manufacturer.
Now, as a cement manufacturer, the company is seeing high fuel costs eating into its already tight margins. This scenario, using a leveraged business, means the company barely made any profit in FY23.
So what do you think about Birla Corporation? Given its current financial position, do you think the bank is a good buy at 84x price-to-earnings?
Written by Nasir Hussein
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