Displaying items by tag: Dalmia Bharat

India: Dalmia Cement (Bharat) faces a potential stumbling block to its planned acquisition of Jaiprakash Associates’ cement business for US$683m due to an on-going shareholder dispute at subsidiary Jaypee Bhilai Cement. The Economic Times newspaper has reported that a court has frozen Jaiprakash Associates’ 74% shareholding in the company, and ordered it not to create new third party rights. State-owned Steel Authority of India Limited holds the remaining 26% stake in the cement producer, which operates the 2.2Mt/yr Bhilai Jaypee grinding plant in Durg, Chhattisgarh.

Dalmia Cement (Bharat) and Jaiprakash Associates concluded multiple separate agreements for the transfer of ownership of Jaiprakash Associates’ cement subsidiaries on 26 April 2023. Besides Jaypee Bhilai Cement, these include cement plant and limestone mine operator JP Super and grinding plant operator Jaiprakash Power Ventures.

India: Dalmia Cement (Bharat) has appointed Puneet Dalmia as its managing director (MD) and chief executive officer (CEO). He will succeed Mahendra Singhi in the role in December 2023. Singhi will remain working for the company as Director and Strategic Advisor to the MD and CEO to aid the transition process.

Puneet Dalmia has been the MD of Dalmia Cement (Bharat)’s parent company Dalmia Bharat since 2004. Prior to this co-founded JobsAhead.com in 1999, which was sold to Monster.com in 2004. Dalmia is also the chair of the Development Council for Cement Industry (DCCI), set up by the Government of India in June 2021. He holds a master of business administration (MBA) postgraduate degree from IIM-Bangalore and holds a bachelor of technology degree from IIT-Delhi.

Adani Group announced this week that it was set to acquire a majority stake in Sanghi Cement. Its subsidiary Ambuja Cements said it was going to spend an enterprise value of just over US$600m on buying a 57% share in Sanghi Industries. The acquisition will be fully funded through internal accruals. The transaction works out at about US$99/t of clinker production capacity, a similar amount to what Adani Group paid Holcim to buy Ambuja Cements and ACC in 2022.

The acquisition has generally been perceived as consolidation in a crowded market. Profits have been under pressure in recent years due to the coronavirus pandemic lockdowns, logistics issues and then energy and other input price rises. However, commentators from ICICI Securities, cited in the local press, took the alternative view that Adani Group might be trying to start a price war in the west of India. They noted that demand for cement was 70Mt/yr in the region versus a production capacity of 82Mt/yr. Yet Sanghi Cement has reportedly been operating at less than a third of its capacity. Adani Group also revealed its intention to increase the cement production capacity at Sanghi Cement’s Sanghipuram plant to 15Mtyr by mid-2025 from 6.1Mt/yr at present. If the plant were upgraded it would potentially increase Adani Group’s market share from 19% to 37%.

Another aspect to consider with any large corporate action by Adani Group is the political angle. Adani Group’s chair Gautam Adani is often linked in the local press to the country’s ruling Bharatiya Janata Party (BJP) and Prime Minister Narendra Modi. So, every time Adani Group does something newsworthy, opponents of the BJP play up the perceived connections. This time the Indian National Congress (INC) simply noted publicly that a rival bidder for Sanghi Cement had encountered a tax investigation before it withdrew from the auction. There is no evidence suggesting that anything underhand happened here. Yet the point to consider going forward is that anything that Adani Group does is likely to be subject to more scrutiny than its peers. This may have unexpected consequences.

The financial results for the India-based cement producers covering the first quarter of the 2023 - 2024 year have been released in recent weeks. Generally, revenue and sales are up strongly but profits less so. Due to this, there has been a lot of attention placed on the costs these companies are incurring. Inflation on energy costs reportedly peaked in late 2022, but as Graph 1 below shows, it has been a mixed situation for the larger cement companies.

Graph 1: Comparison of Power & Fuel costs for selected Indian cement producers in first quarter of 2021, 2022 and 2023 financial years. Source: Company financial reports.

UltraTech cement said that its energy cost grew by 3% year-on-year in the first quarter of the 2024 fiscal year and it blamed this mainly on negative currency exchange effects. It also reported higher raw material costs due to the growing price of fly ash and slag. Ambuja Cements (and subsidiary ACC) managed to cut both its fuel costs and increase its earnings, which, while impressive, is not entirely unexpected following the takeover by Adani Group in mid-2022. Similarly to UltraTech Cement, neither Shree Cement nor Dalmia Cement were able to grow earnings faster than revenue, so earnings per tonne of cement fell. Birla Corp, however, did manage to pull off this trick due to a “substantial decline in fuel and power costs.”

One consequence of a competitive cement market with lower profits than previously, is a renewed emphasis on marketing. Adani Group’s subsidiaries Ambuja Cements and ACC both highlighted the companies’ branding and marketing activities in the first quarter. Ambuja Cements has resurrected its television advert with wrestler The Great Khali, ACC is highlighting its part in the building industry since the 1930s with its own campaign and both companies are targeting sporting events such as the India versus Australia World Test Championship. Adani Group is building up brand awareness following the acquisition and potentially leading up to a name change in the future.

The other companies are also doing this but one campaign that sticks out has been Shree Cement’s use of classic video games such as the ‘Shree Cement Bros” video on its website. Computer game character Mario has done a lot of things in his time but he also worked in a cement plant back in the 1980s Game & Watch title ‘Mario’s Cement Factory.’ We are still waiting for the 4k remake with online multiplayer for some reason! Until then, it is worth reflecting that brand awareness is important in the world’s second largest cement market and it may become more so as Adani Group continues to establish itself.

India: Germany-based Gebr. Pfeiffer says that it has received orders for two MVR 3750 C-4 vertical roller mills from Dalmia Cement (Bharat). The producer plans to install one mill at its Ariyalur grinding plant in Tamil Nadu and the other at its Kadapa grinding plant in Andhra Pradesh. Gebr. Pfeiffer says that the mills will be employed in grinding clinker and pond ash. Each will produce 160t/hr of cement or fly ash cement. The supplier said that the mills' vertical design will help them to dry pond ash, as well as grinding and classifying it.

India: Dalmia Bharat has commenced commercial operations at its new Sattur cement plant in Tamil Nadu. The 2Mt/yr grinding plant will serve the growing South Indian market. The new facility raises Dalmia Bharat’s installed production capacity by 4.8% to 43.7Mt/yr

Adani Group and JK Lakshmi Cement were reported to be leading the race to acquire Sanghi Cement this week. The Economic Times newspaper reported sources who said that both companies are about to start due diligence processes ahead of making formal offers in the next few months. The enterprise value of Gujarat-based Sanghi Cement is around US$730m. Shree Cement, Nirma Group and Dalmia Bharat were said to have been interested previously, but no longer at this stage. However, none of the companies involved have commented directly on any bidding process so far.

Coverage in the India-based press earlier in July 2023 suggested that Shree Cement had dropped out of the bidding process for a 40 - 70% stake in Sanghi Cement. Although the exact reasons for Shree Cement withdrawal were not expressed, it was noted that the enterprise value for Sanghi Cement included debts of around US$220m. In late 2022 the Kotak Mahindra Bank made an investment of around US$67m in Sanghi Cement to ‘help the company's liquidity profile and enhance its operations.’ The head of the bank’s Special Situations Fund added that the cement producer’s performance had been under pressure due to high energy costs and that this had been further exacerbated by impending debt repayments stemming from expansion capital expenditure.

Sanghi Cement had the misfortune of commissioning a new line at its integrated plant during the Covid-19 pandemic. The subsidiary of Sanghi Industries operates a 6.6Mt/yr unit at Kutch in Gujarat, with a 130MW captive power plant and a 13MW waste heat recovery (WHR) unit, making it one of the largest plants in the country. It also owns three cement terminals in Gujarat, Maharashtra and Goa. Its annual power and fuel costs rose by 79% year-on-year to US$49.9m in the year to March 2022. Then its finance costs tripled to US$29m in the year to March 2023. Some of the increased fuel costs may have been down to the new production line but its total income in the year to March 2023 was lower than in the year to March 2019.

Adani Group and JK Lakshmi Cement both operate plants in Gujarat. Adani Group runs one integrated and one grinding plant in the state via its Ambuja Cement subsidiary. JK Lakshmi Cement owns a grinding plant. A number of other companies additionally manufacture cement in the state. The biggest of these is the country’s largest cement producer, UltraTech Cement, with three integrated plants and two grinding ones in Gujarat. It would be a surprise if this company tried to buy a share of Sanghi Cement. One prominent India-based cement company that does not have a manufacturing presence in the state is Shree Cement. This made it a compelling candidate for the acquisition before it ruled itself out.

On the national stage, ratings agency ICRA’s June 2023 cement sector report forecast a ‘stable’ outlook for the sector, with cement volumes expected to grow by 7 - 8% in the 2024 financial year. This should be supported by the residential market and infrastructure projects. Crucially, it also noted that power and fuel costs, which peaked in the July - December 2022, eased in early 2023 and are anticipated to further soften in the 2024 financial year. The agency’s view was that this would help company earnings margins, but not to the levels seen in the five years prior to the Russian invasion of Ukraine. This may be cold comfort for Sanghi Cement, but it may have implications for any bidding process.

Lastly, ICRA also warned of the weakening effects that El Niño could have on the monsoon season and, in turn, rural house building during this period. The weather has been a ‘hot’ topic globally this year, as various records have been broken. Yet on a day-to-day basis the weather can also affect the business of making and selling cement. ICRA’s concern was for the latter. An example of the former occurred in June 2023 when Cyclone Biporjoy caused disruption at Sanghi Cement’s Sanghipuram plant. The unit was shut down in mid-June 2023 to protect the staff. Some damage was reported and the plant reopened at the end of the month. Again, as with fuel prices, the weather may also play a part in the calculations of any company considering buying a stake in Sanghi Cement.

India: Dalmia Bharat sold 7Mt of cement during the first quarter of the 2024 financial year, up by 12% year-on-year from 6.2Mt in the first quarter of the 2023 financial year. The company's income also rose, by 10% to US$442m, while its net profit dropped by 30% to US$17.6m. Hindu BusinessLine News has reported that the producer noted a continued downward trajectory to its fuel costs. During the quarter, Dalmia Bharat commissioned its new 2.5Mt/yr Bokaro cement plant in Jharkhand, and completed de-bottlenecking work at its 0.6Mt/yr Midnapore plant in West Bengal.

Managing Director and CEO Puneet Dalmia said "This quarter has been a disappointment as against our expectations. Having said so, we remain focused on seizing the emerging demand opportunities.”

Cement Managing Director and CEO Mahendra Singhi added “Given the promising outlook for cement demand, the expectation of stable cement prices during the rest of the year, and the softening in commodity costs, we anticipate a gradual improvement in profitability."

India: Dalmia Bharat has announced a capacity target of 120Mt/yr by the end of 2031. The Business Standard newspaper has reported that the producer will make total investments of US$2.31bn in its on-going growth drive. The sum includes US$723m invested in the acquisition of Jaypee Group's 9.4Mt/yr cement business in December 2022. Dalmia Bharat's eventual investments in erecting new capacity are estimated at US$1.09bn, US$485m (44%) of it in its North Indian cement business.

CEO Puneet Dalmia said “We are executing the largest capital expenditure in our history.” Regarding the Jaypee Group deal, Dalmia said "The acquisition will give us access to Central India’s and North India’s markets and we would look for more acquisition opportunities in the mid segment. We expect the industry to consolidate further in the coming years. India will invest US$1Tn in infrastructure in the next decade, and that will create a sizeable demand growth for cement.”

India: Dalmia Cement (Bharat) plans to invest US$560m following the signing of a memorandum of understanding (MoU) with the Assam government on the construction of a new cement plant in the state. The Economic Times newspaper has reported that the producer expects the project to generate a total of 2500 new jobs.

Managing director and chief executive officer Mahendra Singhi said “This year also marks the 10th anniversary of Dalmia Bharat’s manufacturing presence in Northeast India. We remain deeply committed to continuing to be a partner in the region’s economic progress." He continued "The Northeast region has showcased a very forward-leaning mindset, being one of the fastest adaptors of low-carbon blended cement. The penetration of Low Carbon Green Cement is in line with our vision of becoming carbon negative by 2040, and further intensifies our commitment towards the Grey to Green movement.”

India: Dalmia Cement (Bharat) has launched Dalmia Supreme cement, a Portland pozzolana cement (PPC), in the Eastern India market. The producer says that the cement is a is a specialised, best-in-class product formulated for all construction applications, offering better workability, higher density, chemical resistance and strength and faster setting times than ordinary Portland cement (OPC). Dalmia Cement already sells Portland fly ash cement under its Konark cement brand.

Dalmia Cement (Bharat)'s head of sales, logistics, technical services and marketing Rajiv Prasad said “We are excited to introduce Dalmia Supreme Cement in the Eastern market. In line with the company’s customer-centric approach, this new offering is to cater to the growing needs of a specialised product for 'Stronger, Faster and Better' construction."