Displaying items by tag: GCW620

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: Amubja Cements has appointed Hitesh L Marthak as its company secretary and compliance officer. Hitesh holds 25 years professional experience. He was appointed to the same positions at subsidiary ACC in late July 2023. Both Ambuja Cements and ACC are part of Adani Group.

Italy: Alpacem subsidiary W&P Cementi has concluded a deal to buy Buzzi’s Fanna cement plant in Friuli-Venezia Giulia. The plant has a clinker capacity of 660,000t/yr. As a part of the deal, Buzzi will obtain a 25% stake in Alpacem’s Austrian subsidiary Alpacem Zement Austria. Alpacem said that the deal expands the companies’ existing strategic partnership into the Austrian market. The parties expect to conclude the deal, pending the approval of competition authorities, in 2024.

Alpacem chief executive officers Bernhard Auer and Lutz Weber said “We are pleased to be expanding the strategic partnership. There are many future challenges in the cement sector that we can solve better together than we can individually.”

Colombia: Cementos Argos reported first-half sales of US$6.71bn for 2023, up by 25% year-on-year. Wet weather in the US and a slowing residential construction market in Colombia contributed to a 2.7% drop in cement sales to 7.9Mt. The company’s earnings before interest, taxation, depreciation and amortisation (EBITDA) rose by 45% to US$1.3bn, while its net profit rose by 56% to US$179m.

President Juan Esteban Calle said "In the first half of 2023 we achieved relevant milestones that demonstrate our commitment to generating value for our shareholders and other stakeholders. The progress in the execution of our share price recovery initiative, the growth in revenues and the expansion in the profitability margins of the businesses in our main markets motivate us to continue working every day to generate value for all our stakeholders."

India: Birla Corporation reported consolidated sales of US$293m in the first quarter of its 2024 financial year, up by 9.3% year-on-year from the previous first quarter. This was partly due to a 12% rise in the company’s cement sales volumes to 4.41Mt, which offset ‘subdued prices’ in its core markets. The producer increased its earnings before interest, taxation, depreciation and amortisation (EBITDA) by 15% to US$37.9m. United News of India has reported that Birla Corporation recorded a capacity utilisation of 91%, which was among the highest in the Indian cement industry.

The company said that it will ‘maintain its relentless thrust on cost rationalisation, shoring up sales of premium products in high realisation geographies, route-to-market optimisation and increasing leadership bench strength and depth.’

Saudi Arabia: Saudi Cement recorded US$204m in sales in the first half of 2023, up by 15% year-on-year from US$177m in the first half of 2022. The producer reported a net profit of US$55.7m, up by 28% from US$43.6m.

India: Wonder Cement has concluded a memorandum of understanding (MoU) with authorities to build a cement production facility in Desar, Gujarat. The Times of India newspaper has reported that the producer plans to invest US$66.4m in the new facility.

Pakistan: Lucky Cement's sales were US$1.62bn in the 2023 financial year (1 July 2022 - 30 June 2023), up by 16% year-on-year from US$1.4bn in the previous financial year. Its profit after tax was US$210m, up by 63% from US$129m.

Japan: Taiheiyo Cement's sales were US$1.35bn in the first quarter of the 2024 financial year, up by 9.6% year-on-year. Meanwhile, its profit before tax rose by 36% to US$20.8m.

Nikkei Financial Summary News has reported that Taiheiyo Cement has maintained its forecast of sales of US$6.43bn and profit before tax of US$392m for the full 2024 financial year, which ends on 31 March 2024.

Japan: Sumitomo Osaka Cement says that it expects sales to rise by 14% year-on-year to US$761m during the first half of the 2024 financial year. Nikkei Financial Summary News has reported that the producer expects a drop in its cement volumes, offset by price hikes. Currency effects will also impact its result. Meanwhile, coal prices remained lower than expected. The company expects to record a net profit of US$26.6m, compared to a loss of US$20.4m in the first half of the 2023 financial year. It previously forecast a US$13.3m loss.

Sumitomo Osaka Cement recorded US$52.8m in sales in the first quarter of the 2024 financial year (1 April - 30 June 2023). This corresponds to year-on-year growth of 16%. Nonetheless, it made a net loss of US$7.6m.

Throughout the first quarter of the 2024 financial year, Japanese cement despatches fell by 15% to 10.1Mt. Exports declined most sharply, by 43%, to 1.51Mt.