Birla Corp shares shed 14% on NGT suspension of mining at Chittorgarh

The stock was down by 14% in intraday trade with curbs on excavation of limestone for feeding firm's two cement plants

Shares of Birla Corporation fell by 14 per cent on the BSE in intra-day trade, a sequel to the National Green Tribunal (NGT) directing all mechanical mining operations be suspended in the municipal area of Chittorgarh city in Rajasthan.

The share price finally closed at Rs 531.95, down 5.8 per cent. Since 2014, the company had been engaged in mechanical mining of limestone outside a 2 km periphery of the historic Chittorgarh fort. This was to feed its two cement units at Chanderia in the state, where the installed capacity is four million tonnes (mt) a year.

The company said the NGT also directed the state’s pollution control board, the director of Rajasthan’s mining department and the collector of Chittorgarh to stop all mining within 10 km of the Bassi Wildlife Sanctuary or within the latter’s eco-sensitive zone when notified. “While we are studying the implications, we have taken effective steps to ensure no mining takes place in the area that may fall within these limits. We do not anticipate any material impact on current operations, as we have sufficient reserves in areas outside these limits,” a company spokesperson said. 

Analysts said any ban on mechanical mining would increase Birla Corp’s costs. It would then have to send more clinker despatches from its Satna (Madhya Pradesh) unit and procure more limestone to feed the twin plants at Chanderia.

Prior to this development, a report from Yes Securities predicted Birla Corp’s freight cost would rise from Rs 957 a tonne in 2017-18 to Rs 985 a tonne by the end of this month, later going to Rs 1,015 a tonne.

“If it has to stop all mining operations in the designated area, its freight costs are likely to shoot up much more than projected earlier,” said an analyst who tracks the company. 

In August 2011, the state’s high court had suspended mining operations through blasting at Chanderia. The company challenged this at the Supreme Court, which in 2014 by an interim order allowing mining by using earth moving machinery beyond two km from the Chittorgarh fort. The apex court had also directed the Central Building Research Institute (CBRI) to study and give a report on all relevant aspects of full-scale mining and any impact on the fort. 

In its 2017-18 annual report, Birla Corp stated this report had concluded that vibration and air pressure induced by the mines of Birla Cement Works (owned by Birla Corp) and adjoining ones were well within the safe limits in national and international standards. And, no damage to the fort from mining. The company had asked for interim relief and the matter is in a final stage of hearing. 

Meanwhile, Birla Corp had installed additional equipment at Chanderia and is in the process of installing a 3.6 Mw solar energy unit there. The mining restriction at Chanderia had affected the company till it acquired the assets of Reliance Cement. The report from Yes Securities said operating earnings (Ebitda) per tonne of cement in 2011 was Rs 700 a tonne, falling to Rs 300-400 by 2014. It attributed this to the problem at Chanderia. 

However, since 2016, the Ebitda per tonne has been going up, from Rs 600 a tonne  to nearly Rs 800 a tonne, led by the plants of Reliance Cement. “Despite two units at Chanderia contributing over 25 per cent of the company’s total installed capacity, we estimate its contribution to Ebitda around 12 per cent, while the same for Reliance Cement’s plants, which Birla Corp had acquired, is estimated to contribute around 55 per cent,” said Ravi Sodah, research analyst with Elara Capital. Mechanical mining, which is costlier, was pulling down the Ebitda from Chanderia, he said.  
 

In the same annual report, the company stated its performance had been affected by the mining ban, necessitating the sourcing of part of the limestone requirement at significantly higher prices.