Birla Corp rides high on low petcoke price

Birla Corporation lowered its fuel costs by 11 per cent through negotiated imported petcoke prices to post a 152 per cent rise in net profit to Rs 58.43 crore in the September quarter despite weak sales.

Sales declined 3.5 per cent in value and 10 per cent in volume but Birla Corp’s fuel costs, which make up 40 per cent of input costs, fell 11 per cent to Rs 171.31 crore, absorbing the Rs 40.39 crore dip in revenue.

“We negotiated a deal at a lower price earlier this year when prices were low and petcoke supplies are steady now,” a Birla Corp executive said. 

An analyst added Birla Corp had ensured supplies of cheap petcoke for the ongoing quarter as well. “The company is placed better than its competitors to face ambiguity over demonetisation,” the analyst said.Birla Corp’s closest competitor, Shree Cement, whose units are entirely petcoke based, posted a 22 per cent surge in net profit at Rs 291.50 crore during the quarter, driven by higher sales. Ultratech Cement, too, posted a 25 per cent surge in net profit at Rs 613.64 crore in July-September.

Petcoke prices surged to $77 a tonne in August from $45 a tonne in January. Companies that stockpiled petcoke gained from the move. Industry sources said companies usually kept stocks for 45 days.

Even as Birla Corporation may find it smoother than its peers to keep its power costs under control in the ongoing quarter due to pre-negotiated price, it still faces the pertinent problem of limestone procurement and uncertainty over its ownership which may prove difficult for the company in the days ahead.

A report from brokerage firm Motilal Oswal said the outlook for Birla Corp was clouded by a prolonged limestone mining issue at Chanderia in Madhya Pradesh, where blasting has been suspended on a Supreme Court order forcing Birla Corp to use only mechanical mining.

“However, this was not sufficient, compelling the firm to outsource limestone at significantly higher prices”, a Birla Corp official said. The company also lost the Bikram coal block in Madhya Pradesh in 2014 on a Supreme Court order. Also, the discontinuation of sales tax incentive from the West Bengal government for its Durgapur unit will hurt its operating income in the days ahead.

The acquisition of the cement business of Reliance Infrastructure allows Birla Corp address two immediate concerns, limestone procurement and scaling up. After the acquisition, Birla Corp’s capacity will increase from 10 million tonnes to 15.5 million tonnes.