Displaying items by tag: UltraTech Cement

India: UltraTech’s 3.2Mt/yr integrated Rajashree plant in Aditya Nagar, Karnataka received its first petcoke delivery by rail, dispatched from Mangalore Refinery Private Limited (MRPL)’s new mechanised handling facility. The installation cost US$23.4m and can load 3600t of coke at a time into 59 cars, enabling it to process MRPL’s refinery’s 1.0Mt/yr quickly and in a way that reduces the load on road transport.

The National Council for Cement and Building Materials (NCB) International Seminar is running this week in New Delhi and this gives us a good opportunity to take a snapshot at the world’s second largest cement industry.

Data from the Ministry of Commerce & Industry shows comfortable cement production growth of 4.4% year-on-year to 255Mt in the first nine months of 2019. As graph 1 shows there was higher production growth in 2018 but this followed a decline in 2017, due to partly to the government’s demonetisation policy. October 2019 confirms a trend of falling year-on-year growth from August 2019 onwards following a peak growth rate in mid-2017.

Graph 1: Indian cement production in the first nine months of the year, 2015 – 2019. Source: Indian Ministry of Commerce & Industry.

Graph 2: Year-on-year change in monthly Indian cement production, 2017 – October 2019. Source: Indian Ministry of Commerce & Industry.

Analysts like ICRA have blamed the growth slowdown on the general election in mid-2019 and then the monsoon rains. By region in the six months from April to September 2019 it noted a slowdown in demand due to slowing government projects in northern, eastern and central areas. Labour concerns were reported in the north, centre and Gujarat in the west. Raw material shortages were picked up on such as water in Maharashtra and sand in the east and Andhra Pradesh. Positive growth was reported in Kerala, driven by post-flood reconstruction and low-cost housing schemes, and in Karnataka due to general construction activity. Broadly, UltraTech Cement, the country’s largest cement producer, in its November 2019 investor’s presentation, agreed with this assessment. It noted growth in the northern region and declines elsewhere. Like ICRA it too picked up on low cost housing declaring it to be a ‘key cement consumption driver.’

Away from the figures the main news stories have been continued consolidation such as the auction for Emami Cement and UltraTech Cement’s acquisition of Century Textiles and Industries. The sale of the former for plants in east and central regions has been linked to all the major local producers, including those owned by LafargeHolcim and HeidelbergCement. A report in the Hindu newspaper last week quoted a source placing UltraTech Cement and Nirma Group as the frontrunners with a valuation of around US$700m and an announcement at some point in December 2019. Despite UltraTech Cement’s market dominance nationally, its 17% production share in the east is low compared to its presence elsewhere. Nirma Group’s subsidiary Nuvoco Vistas is one of the smaller producers but, notably, it picked up Lafarge India’s assets in 2016.

Investment in new production capacity has continued with announcements from both JSW Cement and HeidelbergCement in recent weeks about expansion plans well into the mid-2020s. This follows planned projects from Dalmia Bharat Cement and Ramco Cement as well as orders from the JK Cement and Shree Cement. This ties into the capacity growth forecasts of around 120Mt over a similar timescale that the analysts were predicting in the middle of 2019. JM Financial, for example, pinned most of this growth on the south followed by the east and north. However, The India Cements said in November 2019 that it was delaying its expansion projects in Uttar Pradesh due to slowing government spending.

As is usual for a country with a low per capita cement consumption, on the national scale, one of the tensions in the Indian cement industry has been the balance between the capacity utilisation rate and the commissioning of new capacity. Its utilisation rate was below 60% in 2018 and a number of producers started reporting the negative effects of higher input and raw materials costs on their financial results. Knowing when to stop and start capacity growth is critical in this kind of environment. Specifically in India’s case curveballs such as government action on pollution and the country’s growing need for imports of coal as well as a burgeoning waste fuels sector are factors to keep an eye on. Finally, general trends such as UltraTech Cement’s focus on the Indian market, despite buying assets outside the country, are also compelling to watch as it chooses to concentrate on just one country. There are parallels here with other similarly-sized multinational that have also been focusing on core markets elsewhere in the globe.

India: UltraTech Cement has announced a planned expansion of its Bhogasamundram waste heat recovery (WHR) power plant to 36MW from 20MW. The plant serves its 5.6Mt/yr integrated Andhra Pradesh cement plant. The upgrade is part of an investment of US$14.0m which will also serve to expand the area of the cement plant by 326 hectares.

As most of the larger cement producers have released their financial results for the third quarter of 2019 it’s time to see how they are doing so far this year.

Graph 1: Revenue from major cement producers, Q1 - 3 2019. Source: Company reports.

Graph 2: Cement sales volumes by major cement producers, Q1 - 3 2019. Source: Company reports.

LafargeHolcim is looking good, with rises in both its net sales and earnings on a like-for-like basis. The sale of its assets in South-East Asia earlier in the year and in 2018 may have appeared to reduce its figures, but the like-for-like growth suggests that the strategy its working. This has been driven by markets in Europe and North America as its other big market, Asia, has continued to slide. The latter vindicates the group’s decision to partly leave the region, in the short term at least. It’s also interesting to note that at the macro-scale LafargeHolcim’s ready-mixed concrete (RMX) sales fell by 1.3% on a like-for-like basis to 7.4Mm³ in the first nine months of 2019. What does this mean for a building materials company that has been moving towards the whole supply chain and concrete?

Anhui Conch Cement reported cement and clinker sales volumes of 202Mt in the first half of 2019, a 42% year-on-year growth for the same period in 2018. Its revenue increased by 42% year-on-year to US$15.9bn in the first nine months of 2019 from US$11.1bn in the same period in 2018, putting it ahead of Germany’s HeidelbergCement in sales terms. The group was coy on how it actually managed to boost its sales so fast in a country where cement sales only rose by 5% in the first half of the year. Yet, it did admit to slowing sales growth in West China in the first half. A 5% fall in fuel and power costs no doubt helped its profit margins also. Notably, its overseas sales nearly doubled to US$143m in the first half of 2019 or 2% of its total revenue.

HeidelbergCement’s financials were solid, with growing revenue, earnings and profits. This was balanced by falling cement and clinker sales volumes. Cement sales fell in all group regions with the exception of North America. However, it was able to boast about ‘positive results in all group countries in the third quarter except for Egypt’s. Company head Bernd Scheifele summarised the sitaution by saying that, “price increases and strict cost discipline more than compensated for the slightly weaker demand for our products in the third quarter.”

Of the building materials companies with larger revenues, Cemex has had a tougher time of it so far in 2019 with declining sales, cement volumes and earnings. In part this has been due to a poor market in Mexico, although chief executive officer (CEO) Fernando A Gonzalez said that the group believed that weak demand for their products was ‘bottoming out’ and that a new infrastructure program made them hopeful looking forward. The group’s Middle East and Africa region also caused concern with a 3% drop in sales volumes in the Philippines, one of its key South-East Asian territories.

Things to note from the smaller producers featured here are as follows. India’s UltraTech Cement says it is the world’s third largest cement producer outside of China. With an installed production capacity of over 100Mt/yr in India this may well be the case. The vast majority of this is based at home in India. Alongside this, its financial figures seem buoyant as it continues to integrate new acquisitions such as Century Textiles and Industries into the business. By contrast Africa’s Dangote Cement has endured mixed fortunes so far 2019 with a modest rise in cement sales volumes and small drop in revenue and a larger decline in earnings in both Nigeria and operations elsewhere in Sub-Saharan Africa. At home this has been attributed to a subdued economy and elsewhere it has pointed to poor markets in South Africa, Zambia and Ethiopia. On the positive side though promotional marketing activity at home in Nigeria helped support an improved third quarter.

Summarising all of this is difficult given the very different nature of these large companies. Generally most of these companies are growing. One takeaway to consider is the emergence of two types of cement producer models at the top end: multinationals and large-local players. In recent years the rise of the large-local player has been a story mirroring the economic prominence of China and India. One can also see it in places like Indonesia and Brazil. The worry is that these kinds of companies are more exposed to regional economic risks than multinational ones. Yet in 2019 some multinational cement producers are also having problems. Whatever else happens, if fears of a new global recession come true, then these larger scale producer models will be tested, possibly to breaking point. 

India: Ultratech has reported a profit after tax in the three months to 30 September 2019 of US$81.8m, up by 62.6% from US$50.3m in the third quarter of 2018. The company made sales of US$1.34bn in the period, a year-on-year improvement of 4.4% from US$1.28 over the same three months of 2018. In spite of nationwide monsoon flooding, which was heaviest in Ultratech’s key operating areas of Eastern and Central India, and depressed demand, the company consolidated its 117Mt/yr capacity with the acquisition of Century Cement in September 2019. Ultratech’s reliance on renewable power grew to 10.5% from 8.4% in the previous three months to 30 June 2019, cutting energy costs by 9.0%. During the period, Ultratech carried out annual maintenance across its installed capacity, resulting in a relatively low capacity utilisation and raising variable costs by 3.0% in comparison to the previous quarter. The company said that it is ready to meet normalised cement demand going forward, with the government’s commitment to a thrust in infrastructure spending bolstering positive expectations. Ultratech, the World’s third biggest cement company, is the only one to have a capacity greater than 100Mt/yr in a single country outside of China.

India: UltraTech Cement has declared the scheme of arrangement between itself and Century Textiles and Industries as part of its merger process. It will issue one equity share worth US$0.14 each for every eight equity shares of the same value held by the shareholders of Century Textiles and Industries. UltraTech Cement received approval from the Competition Commission of India (CCI) for the acquisition of the cement business of Century Textiles and Industries in late August 2018 but it faced legal challenges subsequently.

The acquisition further strengthens UltraTech Cement’s lead in the Indian market. It says it is now the only company outside of China to have a production capacity of more than 100Mt/yr in a single country. It also claims that it is the third largest cement company in the world excluding those based in China.

Bangladesh: Germany’s HeidelbergCement will purchase Ultratech’s stake in Emirates Cement, the owner of the 0.5Mt/yr Emirates grinding plant in Dhaka. NewAge Business has reported that Ultratech, a subsidiary of India’s Aditya Birla Group, has set the price of the stake at US$32.1m.

Ultratech first produced cement in Bangladesh following Aditya Birla Group’s acquisition of ETA Star Cement in April 2010, when it bought into the latter’s Bangladeshi subsidiary Emirates Cement for an estimated investment of US$382m. The divestment of its sole Bangladeshi asset awaits bank approval.

Bangladesh produces 58Mt/yr of cement, exceeding a market demand of 31Mt/yr. Of the 75 producers in the country, only 35 are actively making cement.

India: UltraTech Cement has reported a 91% rise in its profit for the first quarter of the 2020 fiscal year, to US$170m from US$89m in the first quarter of the 2019 fiscal year. Its net sales were up by 15% to US$1.49bn, despite flat sales volumes. These were 2% higher at 17.86Mt, compared to 17.48Mt a year earlier.

India: UltraTech Cement’s net sales grew by 15% year-on-year to US$1.42bn in the quarter to 30 June 2019 from US$1.23bn in the same period in 2018. Its profit before interest, depreciation and tax rose by 61% to US$402m from US$250m. Its local sales volumes increased by 3% to 17.3Mt from 16.8Mt but exports fell by 7% to 0.6Mt from 0.65Mt.

It said that it had fully integrated its UltraTech Nathdwara Cement subsidiary with its systems and processes. The plants it acquired from Jaiprakash Associations in June 2017 were operating in line with its existing plants and had achieved break-even profit before tax during the reporting quarter. The commissioning of its 4Mt/yr Bara grinding plant in Madhya Pradesh has been delayed to late 2019.

With a good number of the financial results published by the non-Chinese multinational cement producers for the first half of 2019, it is now time for a roundup. Graphs 1 and 2 below lay some of the basics with the general sales revenue and cement production volume trends.

Graph 1: Sales revenues from large multinational cement producers in the first half of 2019 and 2018. Source: Company reports.

Graph 2: Cement sales volumes from large multinational cement producers in first half of 2019 and 2018. Source: Company reports.

This is only part of the picture as the larger companies had various complications. For example, LafargeHolcim’s apparent falling revenue and sales volumes is mainly due to its massive divestments in South-East Asia. On a like-for-like basis its sales and sales volumes of cement rose. Its recurring earnings before interest, taxation, depreciation and amortisation (EBITDA) better illustrated this with a rise of 7.2% year-on-year in real-terms to Euro2.41bn in the first half of 2019 from Euro2.25bn from 2018. The company didn’t have it all its own way though with falling cement sales volumes in Asia despite the divestment and poor growth in its Middle East Africa region.

By contrast HeidelbergCement reported growing sales but its earnings and profits were down. Its profit fell by 33% to Euro291m from Euro435m. This was blamed on the group’s sale of its Ukraine subsidiary in April 2019. The operations were sold to Overin Limited, part of Ukrainian investment company Concorde Capital Group, for Euro13m. HeidelbergCement said that the divestment resulted in a loss of Euro143m. Aside from this, as Bernd Scheifele, the chairman of the managing board of HeidelbergCement, explained, positives in markets in Asia, Western and Southern Europe compensated for weaker business in North America and the Africa-Eastern Mediterranean Basin Group area.

Cemex has a tougher time of it than its larger rivals due its greater reliance on American markets. Slow starts to infrastructure projects were blamed in Mexico, poor weather hit earnings in the US and problems occurred further south too. Luckily Europe was strong for the company with lots of good news areas. It wasn’t enough though as Cemex’s sales fell by 4% to US$6.72bn from US$7bn and its operating EBITDA dropped by 11% to US$1.21bn from US$1.36bn.

As for the other companies covered in the graphs, Buzzi Unicem and Titan Group prospered due to the US market. The former described its US activity as ‘lively.’ However, it admitted that its sales growth there was mainly caused by falling imports in the face of weak domestic demand and ‘considerable production and logistical difficulties’ in June 2019 caused by flooding of the Mississippi river. Titan, meanwhile, caught a well-deserved break after recent years with growth also in Greece and Southeastern Europe. Vicat managed to stave off a decline in sales due to poor markets in Turkey, Switzerland, Indian and West Africa through its acquisition of Brazil’s Ciplan in late 2018. Yet, its earnings and cement sales volumes fell anyway.

Dangote Cement once again suffered at home in Nigeria, while its Pan Africa business grew. Trouble at home was pinned on lower volumes, price discounting, higher input and distribution costs and higher fuel and power costs in the first half of 2019. Of more concern, earnings fell in Pan Africa too in the first half due to market conditions in South Africa and Zambia. As ever though Dangote Cement’s diversity in Sub-Saharan Africa should see it through. Finally, Semen Indonesia continued to ride high as its sales increased by 23% to US$1.17bn due to its absorption of LafargeHolcim’s assets. Unsurprisingly, its sales volumes grew at a similar rate, to just below 13Mt in the first five months of 2019. Yet trouble may be store ahead as its local sales fell by 7% in this period.

Other major producers omitted here include Ireland’s CRH and India’s UltraTech Cement. Both are set to release their results later in August 2019 and will make for essential reading as the market conditions so far in 2019 become clearer. The latter in particular will be worth watching if a report by Indian credit agency CARE Ratings out this week is correct. It has forecast production capacity growth of 120Mt by 2030 in India. UltraTech Cement is perfectly poised to benefit from this.