Fundamental Analysis Of Birla Corporation: Cement plays a very prominent role in the development of a nation’s economy. Any global economy seems quite attractive for an investor that is undergoing heavy Capex that leads to sky-high buildings & world-class infrastructure, and each of these things requires cement as its most basic component.

In this article, we will perform a Fundamental Analysis of Birla Corporation, a cement company, and analyze its business, financials & more..

Fundamental Analysis Of Birla Corporation

Today, India is an economic powerhouse, fuelling its growth with huge capital inflows being poured to multiply the scale of this economy. Keeping this in mind let us look into understanding one such cement manufacturer that is also planning Capex in line with the Indian Economy-Birla Corporation.

Let us also understand how the cement industry is performing by using the Fundamental Analysis Of Birla Corporation and how it is benefitting from the economic boom in India. Let’s find out.

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Fundamental Analysis Of Birla Corporation – Company Overview

Birla Corporation is the flagship Company of the M.P. Birla Group. It was incorporated as Birla Jute Manufacturing Company in 1919 by the Late Mr. Madhav Prasad Birla. Now we’ll learn about the company in detail with the help of Fundamental Analysis Of Birla Corporation. In 2016, the Company transitioned from a Jute manufacturer to a cement producer.

It purchased Anil-Ambani-led Reliance Infrastructure’s cement arm, Reliance Cement Company, for Rs 4800 Cr. This acquisition provided Birla Corp. ownership to a manufacturing capacity of 10 Million Tonnes Per Annum (MTPA), scaling its total capacity to 15.6 MTPA.

The Company currently has 11 manufacturing units at 8 different locations with a total cement Capacity of Birla Corp. stands at 20 MTPA. As of FY23, Birla Corp. along with its subsidiaries reported 10 Million Tonnes of clinker production and 16 Million Tonnes of cement. The cement plants also house captive power plants on their premises. Birla Corp. generated 20 million units of energy from these plants, most of which was from Waste heat recovery systems.

Today, the Company generates 94.53% of its revenue from the sale of cement, while Jute contributes just 5.46% and the remaining 0.01% is earned from the Iron & Steel casting segment. Birla Corp. has a jute manufacturing capacity of 52,631 Metric Tonnes and an Iron & Steel casting capacity of 3750 Metric tonnes.

Industry Overview

India is the second largest cement producer in the world with an installed capacity of over 600 Million Tons (MT) accounting for around 7% of the global capacity. Demand for cement is mainly driven by the housing sector which is estimated to account for nearly 65% of the total demand. 

India’s cement production reached 374.55 million tonnes in FY23, at a growth rate of 6.83% since FY22. The cement demand grew at a CAGR of 5.65% between 2016-22. The Country is expected to continue benefiting from its high-quality limestone deposits available in abundance.

India has a total of 210 large cement plants, of which 77 are in Andhra Pradesh, Rajasthan, and Tamil Nadu. Nearly 32% of India’s cement production capacity is based in South India, 20% in North India, 13% in Central, 15% in West India, and the remaining 20% is based in East India. 

The Indian cement sector is expected to expand its capacity at a compound annual growth rate (CAGR) of 4-5% over the four years leading up to the end of FY27. It is projected to start FY28 with an installed capacity of 715-725 MTPA. India’s cement production for FY24 is anticipated to grow by 7-8%, driven by infrastructure-led investment and mass residential projects.

The year witnessed an unprecedented increase in fuel prices driven by geopolitical events. While the Industry took price hikes, it was not able to fully offset the sharp rise in input cost drivers. After peaking during the first quarter, international fuel prices have cooled down improving margins during the 2nd half of the year.

In this way, the Fundamental Analysis Of Birla Corporation explains the industry overview, its sectors, and various other information about the company.

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Fundamental Analysis Of Birla Corporation – Financials

Revenue & Net Profit

Birla Corporation reported gross revenue of Rs. 8682 Cr in FY23, which increased by 16% from Rs. 7461 Cr in FY22. Revenue growth has been rather inconsistent, dropping by 2% in FY21 and a slow growth of just 6% in FY20. Since FY19, Birla Corp’s revenue has grown at 7.3% CAGR.

Net Profits of the Company crashed by a severe 90% from Rs. 390 Cr in FY22 to Rs. 40 Cr in FY23. The major crash in profits came as a result of rising fuel costs, which increased by 15% as well as initial costs related to the commissioning of the new Mukutban plant. The company’s Net Profits have crashed rapidly from its high in FY21 of Rs. 630 Cr.

Now we have seen the revenue and net profit of the company using the Fundamental Analysis Of Birla Corporation which might be useful for the investors and traders.

Fiscal YearGross RevenueNet Profit
2023 ₹8,682.27 ₹40.50
2022 ₹7,461.22 ₹398.59
2021 ₹6,785.45 ₹630.14
2020 ₹6,915.69 ₹505.18
2019 ₹6,548.73 ₹255.70
4-Year CAGR7.30%-36.91%

Profit Margins

Birla Corporation reported Operating Margins of 10.14% in FY23, which dropped by 543 basis points from 15.57% in FY23. Rising raw material costs have consistently squeezed the Company’s margins, from a high of 20.3% in FY20.

Net Margins on the other hand have slipped to just 0.46%, dropping by 481 Basis points. Birla Corp was already a single digit Net margin business which was squeezed to under a percent in FY23.

Fiscal YearOperating Profit Margin (%)Net Profit Margin (%)
202310.14%0.46%
202215.57%5.27%
202120.04%9.15%
202020.30%7.22%
201915.50%3.86%
5 Year Average16.31%5.19%

Return Ratios

Return on Equity deteriorated significantly from a high of 15.93% in FY21 to a 5-year low of 0.88%. ROCE also dropped from 7.86% in FY22 to a low of 3.77% in FY23. The significant fall in profitability has crumpled the already leveraged business of Birla corp allowing it to barely break even this year. 

Fiscal YearROE (%)ROCE (%)
20230.88%3.77%
20228.16%7.86%
202115.93%11.60%
202013.19%12.28%
20197.17%8.28%
5 Year Average9.07%8.76%

Debt Analysis

The Company has managed to consistently reduce its debt-to-equity multiple from 1.15x debt to Equity in FY19 to a low of 0.86x in FY23. Although Long-term borrowings increased by only 1.3% in FY23 over FY22, the Company’s Finance costs jumped by ~40% as a result of a steep rise in interest rates.

Due to a fall in profitability, the interest Coverage ratio of the Company dropped drastically to just 1.15x. EBIT of at least 1.50x is required as a safe measure against interest expenses. 

Fiscal YearDebt / EquityInterest Coverage
20230.861.15
20220.873.22
20210.973.65
20201.092.76
20191.151.86
5 Year Average0.992.53

Fundamental Analysis Of Birla Corporation – Key Metrics

The Key Metrics of Fundamental Analysis Of Birla Corporation are given below.

ParticularsAmountParticularsAmount
CMP ₹1,729.30 Market Cap (Cr.) ₹11,687.00
EPS ₹5.26 Stock P/E (TTM)83.76
ROE (%)0.88%ROCE (%)3.77%
Promoter Holding62.90%FII Holding7%
Debt to Equity0.86Price to Book Value2.18
Operating Profit Margin10.14%Net Profit Margin0.46%

Fundamental Analysis Of Birla Corporation – Future Plans

  1. The upcoming year was expected to have less than average yield in jute leading to increased costs for manufacturing jute bags. Hence, the Company is looking to cut its exposure from government orders & shift towards exporting food-grade jute to various countries.
  2. In the coming year, the Company will expand its presence in markets of Gujarat, South MP, and other areas situated around the Mukutban plant to maximize efficiency.
  3. Birla Corp aims to reach a capacity of 25 Million Tons by FY27 and 30 Million Tons by FY30. It will be deploying Rs. 700 Cr in FY25 for the same.
  4. Bikram coal mine, a captive mine of the Company is expected to start production in Q2FY25. This mine along with two other captive mines are expected to to cater to 60% of the Maihar Line 2’s enhanced capacity.

Conclusion

In conclusion, we see that in the Fundamental Analysis Of Birla Corporation, Birla Corporation might seem like a diversified company with its business spread across Jute as well as cement, it is primarily a cement manufacturer. 

Now, as a cement manufacturer, the Company has been a victim of high fuel costs eating up its already razor-thin margins. This scenario with a leveraged business meant that the Company was barely profitable in FY23.

So what do you think about the Birla Corporation? Given its current state of finances, do you think the bank is a good buy at a Price to Earnings of 84x?

Written by Nasir Hussain 

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