InvestorQ : Is it true that Birla Corporation is also expanding capacity like the larger cement companies?
Aditi Sharma made post

Is it true that Birla Corporation is also expanding capacity like the larger cement companies?

Mahima Roy answered.
9 months ago

That is correct, although not in the same league. But Birla Corporation is also expanding capacity nevertheless. For instance, after taking over ACC and Ambuja Cements, the Adani group plans to double cement manufacturing capacity from 70 MTPA to 140 MTPA by 2027. The largest player, Ultratech Cements, plans to enhance capacity by 70% from 120 MTPA to 200 MTPA in next 8 years while Shree Cement will expand capacity from 47 MTPA to 80 MTPA by the year 2030. In comparison, Birla Corporation, which is part of the MP Birla group, will be spending about Rs8,100 crore to enhance capacity by 50% to 30 MTPA.

According to Birla Corporation, the expansion of its cement capacity from 20 MTPA to 30 MTPA would be through a mix of greenfield and brownfield projects as well as the de-bottlenecking of existing operations. Out of the 10 MTPA that Birla Corp will add to its capacity over the next 8 years, nearly 2 MTPA would come from de-bottlenecking of existing operations. Of the balance accretion in capacity, 4 MTPA will come from greenfield projects and another 4 MTPA will come from brownfield expansion. While the site for the expansion is yet to be finalized, it is seriously considering state of Chhattisgarh.

However, the group is yet to take a final decision on the location and it would depend on the limestone deposit auctions where Birla Corp will be participating. One advantage of going to Chhattisgarh would be that apart from limestone deposits, the state is also contiguous to Maharashtra where they already have the Mukutban plant. Also, the company will look at the incentive structure. For instance, at Mukutban, Birla Corp gets an incentive of about Rs650 per tonne of cement and this is likely to help the plant become one of the lowest cost and most competitive producers of cement in India.

But it will not be a simple journey for the cement companies from here on. Demand is still coming predominantly from infrastructure and to a lesser extent from industrial demand, largely from warehouses and data centres. Housing demand is still in low single digits. Costs are going up through the roof despite commodity prices easing and that is likely to slice away 500 bps from operating margins. Above all, in the next 8 years, the cement industry will add about 60% capacity i.e. 250 MTPA on its existing 425 MTPA. That could put a lot of pressure on the cement prices amidst a supply glut. We need to wait and watch.