Birla Corp plans 50% cement capacity expansion

Birla Corp plans cement capacity expansion
Birla Corp plans cement capacity expansion

Indian Market
by 5paisa Research Team Last Updated: 2022-09-29T14:32:20+05:30

Expansion of cement capacity appears to be the name of the game. There is massive expansion coming from the Big-3. Post the takeover of ACC and Ambuja Cements by Adani group, it has laid out plans to double its cement manufacturing capacity from 70 MTPA to 140 MTPA by 2027. The biggest player Ultratech, of the AV Birla group, is also planning to enhance its cement capacity from 120 MTPA to 200 MTPA by the year 2030. The third largest cement company, Shree Cement also plans to increase its capacity from the current 47 MTPA to 80 MTPA by the year 2030. The Big-3 are expanding capacity aggressively.


However, it is not just the Big 3 that is expanding cement capacity. Birla Corporation of the MP Birla Group plans to invest more than $1 billion (Rs8,100 crore) over the next 8 years to enhance its cement capacity by 50% from the current 20 MTPA to 30 MTPA by 2030. Its latest commissioning of the Mukutban greenfield cement plan in the state of Maharashtra had boosted the cement capacity of Birla Corporation to 20 MTPA. However, from hereon, the expansion of its cement capacity from 20 MTPA to 30 MTPA would be a combination of greenfield and brownfield projects, apart from de-bottlenecking of existing operations.


The chairman of Birla Corporation, Harsh Lodha, has given the break of this 10 MTPA of cement accretion over the next 8 years. Incidentally, Harsh Lodha had been the auditors of the MP Birla group and had taken over Birla Corporation under rather controversial circumstances. But, back to the core issue. According to Lodha, out of the 10 MTPA addition, 2 MTPA would come from de-bottlenecking of existing operations, 4 MTPA from greenfield projects and another 4 MTPA from brownfield expansion. Birla Corp is participating in the limestone auctions in Chhattisgarh and may put up its greenfield plant in that state.


The group is yet to take a final decision on the location of the plant and it would largely depend on whether they are able to win limestone deposits in the auctions. However, the  Birla Corporation has generally preferred to have projects in contiguous areas and that way Chhattisgarh would certainly fit into that definition. It would also look at any incentive structure. For example, at its Mukutban plant, Birla Corp gets an incentive of about Rs650 per tonne of cement, which has enabled the Mukutban plant in Maharashtra to become one of the lowest cost producers of cement in India.


However, like most cement companies, even as Birla Corp has seen good growth in top line volumes and pricing power, they have taken a hit on the margins front. That is because, some of the key input costs in cement including petcoke, power and fuel are still sharply higher compared to the previous year. They may be down from the peaks, but most of these prices are still much higher on a yoy basis. The overall cement industry is likely to seen margin contraction of 400 to 500 basis points due to the impact of higher costs and the limited leeway to pass on cost spikes. Birla Corporation may have a similar margin problem.


However, there are certain macro issues that Birla Corporation has to worry about. Firstly, the major cement companies are likely to add capacities of nearly 250 MTPA in the next few years which is almost 60% of the total existing capacity today. That is likely to be an overhang on cement prices. Also, the bet for FY23 and FY24 is still that demand growth would come from infrastructure push of the government and from focused industrial demand like warehouses and data centres. Housing demand is likely to be very tepid, growing at single digits. That is the top line challenge Birla Corp has to contend with.


Start Investing in 5 mins*

Get Benefits worth 2100* | Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Disclaimer

Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.

Open Free Demat Account

& get benefits worth 2100*

Resend OTP
Please Enter OTP
  • Have Promo code?
  • Use code ACT2100
Enter Promo code
Account belongs to

By proceeding, you agree to the T&C.

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number