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Creating Value through CSR

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Industrial and social progress can go hand-in-hand, while economic targets are being efficiently met. This can be deduced to be the goal of the current Corporate Social Responsibility (CSR) programmes that are being curated by cement companies. CSR has evolved with a deeper understanding of human and environmental factors that have a direct impact on economic growth.

The world has come a long way from Milton Friedman’s statement, “The purpose of corporate social responsibility is to make profits.” The jury have settled for a clear mandate that corporations have the responsibility to partake in the development of the society around the place where such development is in severe shortage. In India, on 29th August, 2013, The Companies Act 2013 replaced the Companies Act of 1956 and the New Act has introduced far-reaching changes that affect company formation, administration and governance, and incorporates an additional section i.e. Section 135 – clause on Corporate Social Responsibility obligations (‘CSR’) for companies listed in India. The clause covers the essential prerequisites pertaining to the execution, fund allotment and reporting for successful
project implementation.


Most industrial activity in India is in locations far away from the developed cities and towns; there are only a few bright spots, where the township got developed around the industrial unit and the unit only prospered as the development gained ground around the place, whether it be in education, basic health, welfare or skill development. The network effects got better off single units spilling over to a cluster of units. Surprisingly these examples like Jamshedpur, Renukoot and Rourkella in the East or the industrial hubs that later fructified in many regional clusters happened without the enforcement of CSR as a legal requirement.
The early entrepreneurs believed in the role of CSR as a value creating idea, not a mere formality of stipulations and budget exercises, however the need for a uniform code of conduct has made the progress in this area far more structured and corporations can now actually transparently showcase their progress made, which wasn’t the case before.
For an industry such as cement, which starts with a mining activity that is only possible at remote locations, given the limestone deposits, CSR has always been at the forefront of management attention; the Section 135 has put some structure of governance around the subject with specific reporting guidelines.
Of the many areas which outline the focus, the spate of disruptions that Covid-19 had spearheaded threw some additional pointers to the need of additional work. There are three such areas:

  1. Responsibility towards the pool of migrant workers in times of disruption
    The disruptions around the pandemic started with displacement of people in both directions, from the place of work to the place of home and vice versa. Lack of information, communication, absence of logistics, absence of mobile health services, all of this compounded into a cascade of events leading to major dislocations that impacted lives and livelihood of people. When such dislocations happen, the corporates suffer in the form of production losses, delivery delays and rising cost of sales. Concerted preventive work needs to be done in a planned manner as in remote locations that depend on migrant workers, all of these cannot be left for government support only as has been the case in the last pandemic.
  2. Facilitating skill development centres at the industrial cluster
    Skill development is one of the central tenets of CSR activities, which needs to be also seen in the light of those specific skills that are in short supply in the cluster where the unit operates. Investments in this area have to go up many times to ensure that rigid dependence on migrant labour can be minimised. Skill development is more than just the numbers and hours, but actually ensuring the quality of skills to match what skilled migrant labour provide, whether in the area of masonry, carpentry, fitter or technician to the specialised skills around kiln maintenance.
  3. Employability improvement program at the cluster
    This is the final step to ensure that skills developed in the cluster are retained through employment in the cluster, which is a logical progression of the theme. Schemes that focus on a comprehensive skill development program that is targeted to certain specialised jobs in the industrial activities of the cluster, will make the circle complete.
    Cement industrial complexes in remote settings suffer from local skills and while the migrant labour fills up this void, it remains the responsibility of the unit to create a sustainable supply of labour that will create continuity of operations. This is more than just CSR, it is a core business challenge that we are talking about here. Take kiln maintenance, refractory lining, replacement, overhauling of key equipment and none of this can be done with only the local skills available at the cluster.
    A crisis like the pandemic has taught us that those skills, which make our units run efficiently, more often than not, come from the distant quarters in our land. If we take care of these migrant labour in times of crisis, we could do better in staving off major disruptions. Having a more long-term view on this will lead us to make changes in the way we look at skill development in the clusters of industrial activities.
    This is where CSR moves to a value creating role, both for industrial progress as well as for the society where such activities are entrenched.

– Procyon Mukherjee

Concrete

Kesoram to boost cement capacity to 15 MT in next 3-4 years

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The firm’s overall outlay would be between Rs 350 and Rs 500 crore

Kesoram Industries Ltd, a B K Birla Group subsidiary, announced that it plans to increase its cement production capacity to 15 million tonnes (MT) from 11 MT.

Kesoram, which has demerged its tyres and rayon businesses, is on course to make a profit in the current fiscal year (FY).P Radhakrishnan, whole-time director & CEO, told the media that they have chosen to increase cement capacity to 15 MT in phases over the next 3-4 years, up from 10-11 MT.

The overall outlay would be between Rs 350 and Rs 500 crore.He said that the company’s financials would improve in the next quarters as debt reduce and low-cost funds refinance. He added that in 2022, they will turn profitable on a net basis.

Radhakrishnan said they are always attempting to reduce their interest cost to enhance the financial situation. This year, they want to discharge the debt of Rs 500-600 crore and refinance a portion of the total existing debt (Rs 300-400 crore) with low-cost funds to reduce interest costs.With high-cost Optionally Convertible Debentures (OCDs) and Non-Convertible Debentures (NCDs), the business has an outstanding debt of Rs 1650 crore, down from over Rs 2000 crore a year earlier.

The B K Birla group firm also stated that it is shifting its product mix to include more value-added cement, which would increase its EBITA by another Rs 150 crore in the next two years, bringing it to over Rs 950 crore yearly.

An offcial stated that they’re always adding mixed cement to their inventory and plan to increase this to 80% in two years from currently 50%.Kesoram planned to increase capacity by one million tonnes by de-bottlenecking and then add a kiln to the existing facility to decrease capital expenditures.

After weighing all possibilities, the firm will shortly begin accepting fixed deposits, which would help the company get closer to its target of Rs 200 crore.

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Also read: Ramco Cements plans for at least Rs 1,200 cr capex in two years

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Concrete

Cement demand to rise mid-to-high single digits in medium-term

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Capacity utilisation to fall to 65% in cement industry: Fitch Ratings

Fitch Ratings told the media that it believes a sustained gross domestic product (GDP) growth, the government’s thrust on infrastructure and affordable housing, and revival of corporate capex will underpin the growth in the cement industry.

It expects India’s cement demand to increase by mid-to-high single digits over the medium term after an estimated mid-teen rebound in FY22.The cement industry’s utilisation will drop to 65% from 70%, estimated in FY22, as faster new capacity additions will outpace demand growth.

It will temper cement producers’ pricing power, and the industry will consolidate further.

Fitch Ratings said Adani Group’s aggressive approach to cement capacity expansion after it acquired Holcim Indian business. It will result in increasing the competition in the industry.

The increased prices by cement producers will not fully counter the energy prices due to the Russia-Ukraine war.

It said that the cement producers’ per tonne margin in FY23 will stay much below the pandemic level in FY21 when low energy prices increased profit despite having low demand.

Major cement industries reduced financial leverage since FY20 to support financial flexibility despite lower profitability and plans for higher capital expenditure (capex) expansion.

Fitch Ratings added that the impact of inflationary pressure on cement demand from the Russia-Ukraine war had been limited, but downside risks might increase if macroeconomic conditions deteriorate significantly.

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Also read:India’s coal imports likely to grow in 2022: Fitch Ratings report

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Concrete

Adani Group’s Holcim acquisition doubles India Inc’s deal to $19.1 billion

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The sale was worth roughly $7.965 billion a year earlier in May 2021

The $10.5 billion acquisition of cement major Holcim by Adani Group has more than doubled India Inc’s deal value to $19.1 billion in May 2022, with 190 deals. The sale was worth roughly $7.965 billion a year earlier in May.

Mergers and acquisitions, a private equity landscape, and public market activity such as IPOs are all part of the deal.

According to the Grant Thornton Bharat report, the overall transaction value decreased by 59% in May compared to April due to the $40 billion merger agreement between HDFC Bank and HDFC that was struck in April.

Adani Group and Holcim signed a formal deal last month to buy a 63.11% share in Ambuja Cement, which has a 50.05% holding in ACC, as well as a 4.48% direct investment in the company. The deal should be completed in the second half of 2022.

Apart from the Adani-Holcim agreement, the Grant Thornton study included Reliance and Bodhi Tree’s $2 billion investment in Viacom18 in May. In addition, 13 more high-value purchases worth more than $100 million totalled $5.1 billion in the month under review.

In terms of volume, there were 190 deal transactions in May, up from 120 in the same month the previous year. In addition, volume climbed by 3% over the prior month.

Shanthi Vijetha told the media that start-up, e-commerce, and IT dominated the transaction volumes for the month, while manufacturing, media and entertainment, and energy topped the overall value.

In May 2022, there were roughly 40 merger and acquisition transactions worth $11.9 billion, with more than a fourth of them coming from the startup sector, which saw 11 agreements for $70 million.

Furthermore, the research stated that in May, private equity investments reached new highs in terms of value and number, totalling $7.2 billion across 150 agreements, representing a 169% increase in value and an 81% increase in deal volume.

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Also read:Adani Group acquires 63.19% stake in Ambuja Cements and ACC

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