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Birla Corporation reported consolidated volumes of 3.97mnt for Q2FY25, reflecting a decline of 5.0% YoY and 9.4% QoQ. The drop in sales volume was attributed to disruptions caused by extended monsoon, flood and slow pick-up in government projects. Revenue for the quarter stood at INR19,526mn, marking a decrease of 14.6% YoY and 10.9% QoQ. The company achieved a utilization rate of 78% for Q2FY25, compared with the 83% in Q2FY24. EBITDA/t for the quarter stood at INR446/t, down 35.5% YoY and 24.3% QoQ, largely due to lower top-line. Company had reported loss in Q2FY25 of INR252mn vs profit of INR584mn in Q2FY24. EPS for the quarter was INR (3.3).

* Expansion Plan: The management has changed its Capex guidance of INR7,000mn vs INR 10,000mn for FY25E. The third line at Kundangunj is progressing well and remains on schedule. The management expects that once it becomes operational next year, some of the incentives lost due to the expiry of the Kundangunj incentive in March will be restored. Additionally, the company has already started receiving incentives from Mukutban, the total incentives received as of now stands at Rs 1200mn. The approval has also been secured for a new grinding unit in Prayagraj, Uttar Pradesh, with a planned capacity of 1.4 million tons, which is expected to be commissioned after Kundangunj capex. Furthermore, a phase 2 expansion of the clinker line at Maihar is scheduled to begin in FY27E, with the aim of doubling its capacity from 10,000 TPD to 20,000 TPD. The company’s overall goal is to achieve a cement production capacity of 25 million tons by FY27E.

* EBITDA to improve by INR170/t in FY25E- EBITDA/t for the quarter stood at INR446/t, marking a decline of 35.5% YoY and 24.3% QoQ. Management has guided an improvement of INR170/t over 1HFY25 in FY25E, driven by a strategic focus on cost reduction and optimizing the geographic mix. Out of the expected increase, INR70/t will be contributed by Project Unnati and Project Shikhar, which focus on operational improvements and efficiency gains. The remaining INR100/t is expected to come from a combination of better realizations, cost optimization initiatives, and improved operational efficiencies. Management is confident that these measures will not only offset rising input costs but also restore profitability to more sustainable levels. With this strategic approach, the company aims to enhance margins and maintain a competitive edge in the market through a more favorable cost structure and product mix.

* Prices are expected to improve- The company anticipates an improvement in both pricing and demand. Management hopes that market conditions will allow them to recover to around 60% of last year’s levels. However, the non-trade sector has experienced a steep decline in prices, rendering it unviable for the company to compete in several markets. A key competitive advantage lies in the company’s premium products which contributed 61% to the volumes, which have enabled a shift towards premium volumes in most regions, helping maintain higher realizations. While the company remains cautious about the possibility of a significant price hike, it is targeting a modest increase of around INR 100 per ton by the end of March.

Valuation and Outlook- The company remains cautiously optimistic about the December quarter. With the festive season lasting until mid-November and assembly elections taking place in Maharashtra, demand recovery is expected to be delayed until late November. However, a moderate price increase and a visible improvement in demand are anticipated. Management has guided for 3-4% volume growth in FY25E, reflecting a positive outlook. The cement industry is expected to recover the losses incurred over the past two quarters, with strong performance projected for Q4FY25E. As per our FY27E estimates we expect Revenue/EBITDA to grow at a CAGR of 1.6%/3.4% respectively over FY24-FY27E. Our target EV/EBITDA multiple is 8.5x on Sep FY26E EBITDA, hence we ascribe a target price of INR1,254, maintaining our rating to BUY.

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