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Birla Corporation stock slipped nearly 6% in opening trade on Monday on the NSE to  ₹676.75. Photo: Bloomberg
Birla Corporation stock slipped nearly 6% in opening trade on Monday on the NSE to 676.75. Photo: Bloomberg

Birla Corp case may hit expansion

Over the next 12 months, it is looking to increase its cement production capacity by 25%

An 18-year-old legal battle continues to drag on, with the Calcutta high court restraining Harsh Vardhan Lodha from holding any position in MP Birla Group firms. He was chairman of the group’s flagship firm, Birla Corp. Ltd. The company’s shares fell more than 8% on Monday.

Even though this order will be appealed against, the impact of the legal outcome could create uncertainty about expansions, analysts said.

Currently, more than 50% of the company’s volumes are derived from central India, followed by the north. The company has planned a couple of expansions in the west.

Over the next 12 months, it is looking to increase its cement production capacity by 25% from the existing 15 million tonnes. With utilization at 87% at FY20 end, there is limited headroom for growth unless new capacities are commissioned, analysts said. In this scenario, any expansion delay due to management uncertainty could result in market share loss.

The legal fallout could also be felt on near-term operations. In a recent post-earnings conference call, its management spoke about undertaking measures to aggressively reduce fixed costs.

Analysts said that a disruption in top management can derail this process.

Finally, the stock trades at a discount to peers and a key factor for re-rating of the stock’s valuation is the expected capacity expansion.

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