Displaying items by tag: UltraTech Cement

India: UltraTech Cement has completed its US$2.5bn acquisition of six integrated cement plants and five grinding plants from Jaiprakash Associates. The transfer was made effective at a meeting of the Scheme Implementation Committee of the board of directors of UltraTech Cement. The purchase includes plants in Himachal Pradesh, Uttar Pradesh, Uttarakhand, Madhya Pradesh and Andhra Pradesh with a total production capacity of 21.2Mt/yr.

“This move is essentially for geographic market expansion, enabling UltraTech’s entry into the high growth markets of India where it needed greater reinforcement,” said Kumar Mangalam Birla, chairman of UltraTech. He added that the acquisition would add synergies in manufacturing, distribution and logistics.

Following the purchase UltraTech holds 18 integrated plants, one standalone clinker production plant, 25 grinding plants and seven bulk terminals, increasing its Ordinary Portland Cement capacity to 93Mt/yr. UltraTech said that the new production units will make it the fourth largest cement producer in the world outside of China and that it confirms its place as the largest producer in India.

India: Members of the Cement Manufacturers Association (CMA) have met with Nitin Gadkari, the Minister for Road, Transport and Highways, to discuss price concerns around the country’s road building campaign. Local producers stand accused of increasing prices despite no rise in input costs amidst a national plan to build more roads, according to the Hindu newspaper. Producers dismissed these concerns, saying that price were lower than they had been in 2015. Instead they bashed discrepancies in export taxes between India and Pakistan.

Delegates from the cement producers at the meeting included N Srinivasan, managing director of India Cements, HM Bangur, managing director of Shree Cement, KK Maheshwari, managing director of UltraTech Cement, Ajay Kapur, managing director of Ambuja Cement, Mahendra Singhi, Group chief executive officer and wholetime director of Dalmia Cement, Ujjwal Batria, country chief executive officer and managing director of Nuvoco Vistas Corp and Aparna Dutt Sharma, Secretary General of the CMA.

India: UltraTech Cement has commissioned 0.3Mt/yr slag cement grinding mill at its grinding plant at Patliputra in Bihar. The new capacity is intended to meet demand for slag cement in eastern India. With the expansion of the plant the cement producer has a production capacity of 70.6Mt/yr.

Today HeidelbergCement publishes its financial results for the first quarter of 2017, giving us an idea of how the year is shaping out for the major cement producers outside of China. Looking at graphs 1 and 2 below of cement production volumes and sales revenue gives the initial impression of a reversal of fortunes for the two leading multinational companies. LafargeHolcim’s production and sales are declining as HeidelbergCement races to catch up, boosted by its acquisition of Italcementi in 2016.

This interpretation would be misleading, however, given that LafargeHolcim has been steadily whittling down its assets to become more profitable and because HeidelbergCement has just taken on a raft of production units. The real figures to look at might be the like-for-like changes with adjustments made for currency, consolidation effects and suchlike. Under these conditions each of the three leading cement producers, with the addition of Cemex, have reported stagnant cement sales in the period. Yet the surprise comes from an analogous look at sales. LafargeHocim and Cemex both reported sales revenue increases of 5 – 6% on a like-for-like basis, whilst HeidelbergCement reported no change. This is further backed up by operating earnings before interest, taxation, depreciation and amortisation (EBITDA) figures that rose significantly on a like-for-like basis for LafargeHolcim at 8.8%, more modestly at 2% for Cemex but fell by 3% for HeidelbergCement.

Graph 1: Cement sales volumes at selected multinational producers in Q1 2016 and Q1 2017. Sources: company reports.

Graph 2: Sales revenue at selected multinational producers in Q1 2016 and Q1 2017. Sources: company reports.

The tragedy of the picture above appears to be that Eric Olsen, the chief executive officer of LafargeHolcim, has started to turn the company around following the merger between Lafarge and Holcim in 2015, just as he is leaving the company. This week Olsen denied that his departure was related to the Syria scandal but that it was related to ‘tensions’ at the group. The lesson that HeidlebergCement can take from this is that enlarging a building materials company in a supressed global market requires decisive action to maintain profitability. Certainly, if it doesn’t go HeidelbergCement’s way in future months and years then the stability of its management and major shareholders may become apparent. Although it doesn’t mention internal matters, HeidelbergCement does flag up higher geopolitical and macroeconomic risks in its outlook for 2017 as well as a ‘shift of political measures towards protectionism.’ That last one is potentially bad news for a multinational cement producer looking to move excess clinker around as it downsizes towards profitability.

Of the rest of the producers included in the graphs above Dangote Cement is worth some attention. The production and sales figures show a company evolving from a national player into an international one. Challenged by economic problems and a market contraction at home in Nigeria the company is exploding internationally in sub-Saharan Africa. Roughly, it sold a third of its cement outside of Nigeria in the period but only made a quarter of its revenue outside of its home turf. This has interesting implications for the international future of the company. However, it will be a big moment for the firm once it finally builds a plant in Nepal outside of Africa.

Italy’s Buzzi Unicem and the Brazilian operators Votorantim and InterCement are due to release their first quarter results in the coming weeks which will flesh out the international picture. Already there are lots of fascinating regional trends emerging that require discussion, such as the Philippines that we looked at last week and a ‘back to business’ feeling in China. Next week in the run up the IEEE/PCA Cement Industry Technical Conference in Calgary, Canada we’ll look at the US.

India: The Enforcement Directorate (ED) has filed a prosecution complaint against Penna Cement for alleged irregularities related to the allocation of land and the granting of a mining lease. The agency has also named the deceased YSR Congress chief Y S Jaganmohan Reddy, V Vijaysai Reddy, Penna Group chairman Putta Pratap Reddy and Pioneer Holdings in the case, according to the Hans India newspaper. The complaint accuses the former Andhra Pradesh state government, run by Reddy, of allocating 231 acres in Yadiki mandal of Anantapur district to Penna Cements for setting up a cement plant and officials for allowing the allocation in violation of land acquisition rules.

The ED’s complaint also says that the government at the time refused mining leases to UltraTech Cement, granted a prospecting lease to Penna Cement and was complicit in other irregularities. In return for these actions the ED alleges that Penna Group invested US$10.6m in companies owned by Reddy, in violation of money laundering regulations. Previously, the Central Bureau of Investigation (CBI) filed charges against Penna Cement, Raghuram Cements and India Cements for favours they allegedly received from the Andhra Pradesh state government in 2008 and 2009.

India: Ultratech Cement has reported a fall of 11.84% in its net profit to US$107.1m for the quarter ending 31 March 2017, compared to 121.5m in the first quarter of 2016. However its total revenue rose by 4.25% to US1.21bn compared to US$1.16m a year ago.

For the year ending 31 March 2017, the company posted a rise of 10.87% in its net profit, which rose to US$409.1m. Revenue increased marginally by 1.44% to US$4.33bn.

India: Jaiprakash Associates’ (JAL) US$2.58bn sale of cement plants to UltraTech is likely to be completed by May 2017. Manoj Gaur, the executive chairman of JAL, said that the majority of the payment would be used to pay of debts, according to the Times of India. The cement producer is selling integrated cement plants with a production capacity of 17.2Mt/yr and grinding plants with a capacity of 4Mt/yr.

The publication of LafargeHolcim’s annual financial results for 2016 this week starts to give us a review of the year as a whole for the multinational cement producers. Of the larger producers, CNBM, Anhui Conch and Votorantim are expected to make their releases in April 2016, so we’ll focus here on the available data from LafargeHolcim, HeidelbergCement, Cemex and BuzziUnicem, with UltraTech Cement included for some regional variety.

Graph 1: Sales revenue from multinational cement producers in 2015 and 2016 (Euro millions). Source: Company financial reports.

As can be seen in Graph 1 currency exchange effects have caused problems for producers’ sales revenues, with LafargeHolcim, HeidelbergCement and Cemex all reporting falling sales on a direct comparison. Subsequently like-for-like adjustments have cropped up repeatedly on balance sheets to try and present a more investor-friendly picture, although even this has still seen LafargeHolcim and HeidelbergCement report small declines. In this sense it’s a little unfair to include India’s UtraTech Cement, given that the bulk of its business is in just one country. Operating in just one country though has its own risks, one of which we’ll discuss below.

Unsurprisingly, given the poor sales, the focus for the multinationals has generally been on earnings measures such as operating earnings before interest, taxation, depreciation and amortisation (EBITDA). Here, LafargeHolcim and Cemex have done far better as they have streamlined their businesses. For example, LafargeHolcim’s operating EBITDA rose by 12.9% year-on-year to Euro4.895bn in 2016.

Graph 2: Cement sales volumes from multinational cement producers in 2015 and 2016 (Mt). Source: Company financial reports.

Graph 2 looks at cement sales volumes. Most of the producers have made small gains or losses in 2016 with the stark exception of LafargeHolcim. Its cement sales fell by 12.9% to 233Mt in 2016. More alarmingly, for the fourth quarter of 2016 LafargeHolcim blamed an increased rate of declining cement sales volumes on demonetisation in India, tough trading conditions in Indonesia and a unusually good year (in 2015) to compare itself against in the US.

On that point about India, UltraTech may not have released any sales volumes figures but other larger Indian producers have experienced problems with the government’s decision to remove certain banknotes from circulation in November 2016. A report by HDFC Securities this week suggests that cement volumes fell by 13% year-on-year in January 2017 following a 9% decline in December 2016. The country may be facing its first decline in cement sales volumes since 2001. This is squarely down to government policy.

On a regional basis probably the most worrying theme has been an apparent slowdown in the US towards the end of the year. As mentioned above LafargeHolcim has blamed it on a good previous year and Cemex concurred. Buzzi Unicem also reported the same trend but didn’t attribute it to anything in paticular. President Donald Trump’s push for US$1tr investment on infrastructure in the US should help to reverse this along with anything that happens with his Mexican border wall plans.

The other area to pay attention to is Indonesia. Both LafargeHolcim and HeidelbergCement reported tough trading here prompted by production overcapacity. Locally, Semen Indonesia said this week that its sales revenue fell by 3% to US$1.95bn in 2016 and it still has new cement plants to be commissioned in 2017.

The overall picture for 2016 from these cement producers appears to be one of companies treading water and making savings as their sales were battered. As mentioned previously (The global cement industry in 2016, Global Cement Magazine, December 2016) the geographic spread of assets the multinationals own doesn’t seem to be protecting them from world events as well as they once did. On the plus side northern Europe seemed to pick up or at least hold steady in 2016 but various political shocks such as the UK departure from the European Union and elections in France and Germany may scupper this. In a similar vein India remains one of the key markets but government policy has potentially dented its growth this year. In the US cement volumes may be slowing but Donald Trump is riding to the rescue! With this continued high level of potentially disruptive events cement producers are probably hoping for a quiet year in 2017.

India: A representative of Jaiprakash Associates’ bank ICICI has told local media that its sale of assets to UltraTech Cement should be concluded ‘soon.’ ICICI Bank's managing director and chief executive officer Chanda Kochhar made the comments to the CNBC TV18 television channel in an interview. He added that the transaction was moving well in terms of regulatory approval. The deal covers over 20Mt/yr of cement production assets that are being sold for a value of US$2.4bn.

India: UltaTech Cement’s net profit has risen by 20% year-on-year to US$292m for the first nine months of its financial year to the 31 March 2017 from US$244m in the same period in the pervious year. Its total income from operations rose slightly to US$3.04bn. However, net sales fell slightly in the third quarter.

The cement producer reported that its board of directors had approved the setting up of a 3.5Mt/yr cement plant at Dhar, Madhya Pradesh for a cost of around US$382m. Commercial production at the plant is anticipated to start in early 2019. The plant is intended to grow the company’s markets in southwest Madhya Pradesh.

UltaTech Cement added that it had deposited a penalty of US$17.3m, 10% of a fine imposed by the Competition Commission of India (CCI) in August 2016. It is also facing a separate fine for U$10m from the CCI in relation to alleged misconduct in Haryana. The company intends to appeal both fines.