EXCLUSIVE: Billionaire Kumar Mangalam Birla is surprised by the rebound in infrastructure and construction in India

EXCLUSIVE: Billionaire Kumar Mangalam Birla is surprised by the rebound in infrastructure and construction in India
Indian billionaire and the chairman of the Aditya Birla Group, Kumar Mangalam BirlaBCCL
  • At the Business Insider Global Trends Festival, Indian billionaire Kumar Mangalam Birla shared that he’s pleasantly surprised by the comeback of the infrastructure sector.
  • According to him, aluminium and cement are now back to pre-COVID levels.
  • Birla outlines two factors that shaped the sharp recovery in India’s cement industry — people building their own homes just in case they need to stay for longer and their increasing incomes from agriculture.
One of India’s richest men and the owner of the $48 billion conglomerate spread across 34 countries, billionaire Kumar Mangalam BIrla is pleasantly surprised by the comeback in infrastructure.

“There was a big question around what would happen to infrastructure spending. If I just see aluminium and cement businesses, they’ve both come back to pre-COVID levels very quickly,” he said during a candid conversation at BI Global Trends Festival 2020.

Cement, one of the key segments in infrastructure, continued to hold its ground during the first three months after the lockdown in India was lifted. This is despite the fact that June to September from a seasonally weak quarter for the sector.

The reversal of fortunes in the second quarter can be explained by what’s happening in rural India, according to billionaire and chairman of the Aditya Birla Group, Kumar Mangalam Birla.

It started with migrant workers hustling back to their villages and hometowns as daily work dried up amid India’s nationwide coronavirus lockdown. “People are now building a new home, they’re adding one more room to their existing houses out of safety — just in case they have to stay at their homes for longer,” Birla explained at the Business Insider Global Trends Festival 2020.

While many lost their livelihoods due to the COVID-19 lockdown, those who have managed to keep their farms running have benefitted from government measures. “Supply prices have been fixed by the government for agri-products, which means incomes in rural India have gone up so you see people constructing individual houses,” he said.

The increase in demand is supported by the recovery in supply of cement as well. Production saw a massive dip of 86% in April post the announcement of the nationwide lockdown. Since then, the sector has shown a V-shaped recovery.

EXCLUSIVE: Billionaire Kumar Mangalam Birla is surprised by the rebound in infrastructure and construction in India
India's cement production in 2020BI India

Five cement stocks to jump by 12% in two months
“Cement demand surprised with a sharp recovery in the second quarter against a yearly 30% decline in the March quarter,” noted a report by HDFC Securities. UltraTech Cement — a subsidiary of the Aditya Birla Group — is expected to outperform its competition in the second-quarter earnings. It is the largest manufacturer of cement in the country and third largest in the world.

UltraTech shares gained 1.93% on the Indian stock market today, after the company’s second quarter results showed a 113% rise in net profit. The industry behemoth along with other cement stocks have clocked in double-digit rally over the last three months. And, there may be more upside ahead.

Motilal Oswal Securities has pegged the share prices of UltraTech Cement, Ambuja Cement, ACC, JK Laxmi Cement and Dalmia Bharat to rise by 12% in the following two months.

CompanyShare price gains over the last three months (1 July - 21 Oct)
UltraTech Cement17.5%
Ambuja Cement34%
JK Lakshmi Cement12.5%
Dalmia Bharat31%
Source: BSE

Despite the recent rally, most listed cement companies are still trading at lower multiples compared to the average trading multiples of the last year. Trading multiples are a set of valuation metrics used to evaluate similar businesses on the market.

It’s also important to note that even as the demand for cement is rising, it is not equal across different parts of the country. While companies are likely to benefit from better utilisation in northern, central, and western parts of the country — Maharashtra and eastern markets will continue to bear the impact of cement flow from the southern region, according to Emkay Research.

The South is the only region where the average utilisation rate is under 99%.

The brokerage’s report notes that while the pricing trend in each region is diverse, northern, central and the Gujarat region will be a better pricing scenario. Southern region witnessed the highest price hike of around 14% against the average price increase between 3% to 5% across the country.

Emkay also points that rather than rural India — the pick up in demand for cement is government driven. “Recovery in cement demand has surprised positively after lockdown norms were eased,” it said in its report.

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