Dalmia Bharat, Birla Corp to gain from infra push in central region: Nirmal Bang

Nirmal Bang’s recent report suggests that Dalmia Bharat and Birla Corporation Ltd are set to benefit from the government’s significant investments in infrastructure facilities and connectivity in the central region.

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Nirmal Bang’s recent report suggests that Dalmia Bharat and Birla Corporation Ltd are set to benefit from the government’s significant investments in infrastructure facilities and connectivity in the central region.

Following Dalmia’s entry into the region through the acquisition of Jaypee’s assets, Nirmal Bang shows how other players, such as JK Lakshmi, Birla Corp and JK Cement, will strive to increase their market share. Dalmia’s acquisition of Jaypee assets gives it a 10 percent capacity share despite having no prior presence in the central region.

JK Cement has completed its integrated unit in Panna, Madhya Pradesh and a grinding unit in Hamirpur, Uttar Pradesh. Birla Corp has a significant presence in the central region with a 14 percent capacity share. JK Lakshmi’s market presence in the region is through a contract manufacturing agreement with Kanodia Cement.

The report highlights the possibility that Dalmia Cement may also explore a similar arrangement with Kanodia Cement to increase its market share. Nirmal Bang suggests that proximity of the players to the consumption centres will play a key role in determining who will gain an edge in the central region.

Dalmia is expected to gain market share and price positioning followed by Birla Corporation, JK Cement, and JK Lakshmi, according to Nirmal Bang’s pecking order. However, Birla Corp is expected to make gains in the central region after Dalmia, given its success in establishing a premium product at a price of Rs 20 per bag higher and stabilising it in a challenging pricing environment.

Nirmal Bang predicts that the overall competitiveness of the industry will not only be determined by pricing but also by other factors such as plant positioning, proximity to markets, and lead distance of these companies, which will be crucial determinants for strengthening footholds in the central region.

The central region has shown resilience in terms of economic progress due to the government’s significant investments in enhancing infrastructure facilities and connectivity. Over the last nine years, the region has posted a compound annual growth rate (CAGR) of around 4 percent, lower than the national average of roughly 6 percent.

However, Nirmal Bang predicts that the region’s growth will increase to a range of 9-8 percent between FY24 and FY25. Ultratech, ACC, Ambuja, and Shree cement continue to maintain a significant presence and dominate the market in the region, which comprises approximately 57 markets, including around 35 markets in Uttar Pradesh and 22 markets in Madhya Pradesh.

Based on their average lead distance of 375km to serve these markets, Nirmal Bang anticipates that Dalmia and Birla Corporation would benefit logistically and achieve a higher EBITDA/T (like Ultratech’s EBITDA/T of around 900 in the Centre).

Nirmal Bang expects material price hikes in May which, coupled with robust volumes, would lead to better profitability for the companies.