Analyst Corner: Birla Corporation’s operational efficiencies will improve

Updated: March 2, 2019 11:57:36 AM

Along with infrastructure, GoI’s affordable housing scheme has also been driving cement demand.

Analyst Corner: Birla Corporation’s operational efficiencies will improve

By Yes Securities

Birla Corporation (BCORP) enjoys a strong capacity share of 14.1% currently in Central India. We estimate cement demand in Central region to grow at 7.8% over FY18-FY21E on the back of sustained growth in infrastructure investments by the Government and construction under affordable housing. We expect incremental capacity of 8 MTPA over FY18-FY21 as compared to incremental demand of 14 MT in Central region during the same period, which would ensure healthy pricing scenario.
Company plans to commission 12.25 MW Waste Heat Recovery System (WHRS) at Maihar along with ramp-up of captive coal mine at Sial Ghogri, MP which would improve operational efficiencies going ahead. We factor in total outgo of Rs 31,780 mn over FY18-FY21E towards efficiency improvement and capacity addition plan (capacity would increase to 20.5 MTPA by FY22E from 15.4 MTPA currently). Net debt/equity to hover around 1.07x post all capex plans.

Huge land bank (addition of `8,429 mn) and limestone reserves post acquisition of Reliance Cement would help to add incremental capacity at lower cost. Return ratios appearing optically suppressed due to revaluation of assets to the tune of `8,207 mn in FY18.
The Indian cement industry has been facing turbulent times given the acute housing segment stress post RERA and GST teething woes coupled with the crippling effect of the demonetisation drive. The real estate sector’s cement demand decline over FY15-FY18 was compensated to a large extent by the infrastructure boost triggered by the Government of India’s (GoI) investment surge across housing, urban and rural development, Irrigation and roads & bridges, which rose from `2,584 bn in FY14-15 to `3,462 bn in FY17-18 at a CAGR of 10.2%. Over the same period, central region (Uttar Pradesh & Madhya Pradesh) witnessed the highest growth in infrastructure investments, from `381 bn to `633 bn (CAGR
of 19%).

Along with infrastructure, GoI’s affordable housing scheme has also been driving cement demand.

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