Midcap cement maker Birla Corporation Ltd reported disappointing March quarter earnings, especially on the operational performance front. Higher-than-expected input cost inflation was weighted on its consolidated earnings before interest, taxes, depreciation and amortization (Ebitda) in Q4 of FY22. Ebitda of Rs 276.7 crore declined 29.4% year-on-year (YoY) and was lower than the consensus estimate of Rs 283.9 crore.
What’s more, the near-term outlook is subdued. According to the company’s management, the cost pressure is not likely to ease soon, so profits are expected to remain under pressure in the near future.
“Despite achieving highest ever production in three of our units – Satna, Maihar and Chanderia – and record sales in five states, our profitability was impacted due to steep increase in fuel and freight costs, which cannot be passed on to consumers. Mr. Harsh V. Lodha, Chairman, MP Birla Group said.
Responding to Q4FY22 earnings, the company’s shares fell nearly 5% on the NSE on Thursday. The stock also hit a 52-week low 906.
Keeping in view the increased cost of operations, some brokerages have reduced their FY23 Ebitda estimates. “We cut our EBITDA/PAT estimates for FY23E by 6/12% while we kept FY24E flat, as we expect costs to normalise,” analysts at Yes Securities Ltd said in a report. Some analysts have also reduced the target price on this stock. PAT is short for profit after tax.
That said, the commencement of cement production at its 3.9 million tonne (MT) Mukutban plant in Maharashtra offers some comfort on volume growth.
For the full year, sales of blended cement stood at 12.87 million tonnes, up 4% year-on-year, while premium cement sales stood at 5.69 million tonnes, up 7% over the previous year.
The company’s management expects the operating parameters of the plant to reach optimum levels by the end of FY23.
Analysts at Emkay Global Financial Services said in a report, “The new plant is expected to support volume growth and help the company maintain volume market share. In addition, it is expected to achieve 30 million tonnes of capacity by FY27E. The goal should allay concerns about long-term growth.” on 12 May. This has increased the company’s cement capacity to 20 million tonnes.
Analysts say the demand for cement is likely to improve in Uttar Pradesh, the company’s key market, given the number of mega projects taken up by the state government. Also, the company’s increased focus on non-merchandise sales augurs well for its sales growth.
Further, with the company major capital expenditures, its leverage ratio is expected to cool during FY 2013-24, note analysts at HDFC Securities Ltd.