The Environmental Pollution Control Authority (EPCA) is determined to get a ban on petcoke import, although the ban would not apply to the cement industry, according to Sunita Narain, green activist and member of the EPCA. ‘We have recommended a ban on petcoke import into India and we have recommended a ban on the use of petcoke in all industries other than cement,’ Narain said.
The Supreme Court-appointed EPCA has pitched using India’s own domestic petcoke in the cement industry.
‘India generates about 10 to 12 MT (million tonnes) of petcoke from its own refineries that should go into cement plants, and we should not become the dumping ground for petcoke from the US or Saudi Arabia which is a very dirty fuel,’ said Narain, who is director-general of the Centre for Science and Environment.
‘The Ministry says there should be no ban, but there should be standards on furnace oil (FO) and emissions. We said ‘fine’ and gave to the court a list of industries which don’t have standards.’
Construction cos get thumbs up on Modi’s Spending Plan
Prime Minister Narendra Modi’s plan to spend a record $60 billion on infrastructure this fiscal year has started trickling into company earnings, giving analysts a reason to turn optimistic about Indian construction stocks. Larsen & Toubro Ltd., the nation’s largest engineering firm, has rallied 27 percent this year, beating the benchmark gauge which has risen 19 percent. Gayatri Projects Ltd. and KNR Constructions Ltd., which build roads, and Simplex Infrastructures Ltd. have also surged.
The outperformance may continue as the nation’s central bank rate cut of 200 basis points since December 2014 is helping companies better manage leverage, while new orders are expected to pick up pace in second half, brokerages including Macquarie Group Ltd. Said. And now that the June-quarter earnings season has concluded, bullish notes are trickling in.
Macquarie Capital Securities India analysed results of 12 companies from the sector with combined revenues near that of Larsen & Toubro’s engineering and construction division. Their total revenue rose 12 per cent after three quarters of no growth. Goldman Sachs India said first-quarter earnings suggest that there are ‘green shoots’ for cement consumption driven by low-cost housing and infrastructure. Larsen & Toubro, viewed as a bellwether for domestic economy, reported a 16 per cent jump in revenue from its infrastructure segment, the most in five quarters. The growth was driven mainly by the local market, the company said.
What sand mining ban means for cement cos
Sand availability has become an issue in the states of Uttar Pradesh, Madhya Pradesh, Tamil Nadu and Telangana due to the ban on illegal mining in these regions, according to media reports and channel checks by various brokerage firms. Strict NGT (National Green Tribunal) norms and floods in north Bihar are some of the factors driving this issue in these areas, point out analysts.
‘Our interactions with market participants in Bihar suggest that sand availability is extremely low. In UP (Uttar Pradesh), sand availability continues to be challenging. The eastern UP markets, which were reliant on Bihar, will witness further deterioration in the availability of sand,’ said a recent report by HDFC Securities Ltd.
To construct 100 sq ft of built-up area, 33 bags of cement of 50 kg each and 117 cubic ft of sand, among other raw materials are required, according to the JK Lakshmi Cement Ltd website. In simple terms, lower availability of sand would halt or slow construction activities, thus having a cascading impact on cement demand. Shortage in sand availability has led to spike in sand prices. This has led to illegal mining, which in turn has led to a clampdown by the authorities.
‘Our dealer check shows, in the past, administered prices of sand?prior to auctioning method and National Green Tribunal’s intervention?was quite lower. For instance, within 10 km of the loading point, marginal cost of sand was made available at Rs 300-Rs 350/tonne; as distance increases every 5 km, an increment of Rs 50 is added to base-cost. Today, post auctioning, in some clusters, the administered prices have moved up to as high as Rs 1,000-Rs1,300+/tonne; whereas the marginal costing of sand mining is less than Rs 560/tonne. Thereby, this wide gap between administered and marginal price has opened up law enforcement issues. Add NGT’s restrictions and a slowdown in construction cannot be ruled out,’ said Rohit Natarajan, an analyst with IDBI Capital Markets and Securities Ltd. Given their diversification, pan-India companies are likely to be less impacted than regional ones.
Cement makers catering to the central region like Shree Cement, which gets nearly 20 per cent of its dispatches from Bihar, Prism Cement Ltd and Heildeberg Cement or certain clusters in the south like India Cements Ltd and Ramco Cements Ltd, may see an impact on volume offtake, should the issue persist for long, caution analysts.
Cement price hike offsets cost escalation
The cement sector reported in-line results in 1QFY18, as volumes grew 5.6 per cent YoY, primarily on capacity expansion. Growth in weighted average realisations was marginally higher than our estimates at 8 per cent YoY and 7.6 per cent QoQ. EBITDA/t remained flat as realisations growth offset escalations in power/fuel costs (26 per cent YoY) and freight costs (12 per cent YoY). We expect 2QFY18 to be seasonally mute. However, companies expect demand to pick up in 2HFY18 on a rise in infrastructure and housing demand. Profitability in terms of EBITDA/t is likely to be under pressure in 2QFY18 on cost escalations (higher petcoke / coal and diesel prices) and lower operating leverage (reduced utilisations). Dalmia Bharat and JK Lakshmi are our top picks in the sector.
Rs.290 cr for civil airport in Allahabad
The Uttar Pradesh Government has sanctioned and released Rs 290 crore to upgrade the Bamrauli airstrip in Allahabad before the Ardh Kumbh in 2019. To be built adjacent to Bamrauli Airport, the new civil airport will have facility for landing and take-off of all, including Boeing 737 aircraft.
Since, Bamrauli Airport comes under the purview of the Air Force, the need for a civil airport in the Sangam City was long felt, said State Health Minister Allahabad (West) MLA Siddharthnath Singh, adding that though announcement for the airport was made much before Yogi Government came to power, the process has now been expedited. Sangam City’s airport will be at par with those at Lucknow and Gorakhpur, said Singh, adding that funds have reached the district magistrate.
To be ready within a year, the civil airport would be built on an extended land, acquisition of which would begin soon, Singh, who is also the UP government spokesperson, told TOI. State Government’s request to Railways to come up with a rail overbridge (ROB) and flyover connecting Begum Bazar locality with the airport has also been approved, he added. Railways has sanctioned Rs 110 crore for the two projects, said Singh and added that the ROB and the flyover would be a four-lane road till the new civil airport.
The government has already earmarked Rs 500 crore to upgrade facilities before Ardh Kumbh.
Hyderabad to get Rs.10,000-cr transformation
The rapidly expanding metropolis of Hyderabad is in for a major transformation with a number of infra projects set to completed in the next two years, entailing an outlay of over Rs 10,000 crore. For a city ranked high by consultancy firm Mercer for the quality of living, the completion of the mega Hyderabad Metro project next year and the other projects, including the Strategic Road Development Project of Rs 3,000 crore and four major flyovers/skyways to decongest busy junctions and nodal city points, will make a lot of difference.
KT Rama Rao, Telangana Minister for Municipal Administration and Urban Develo?pment, who supervises various infrastructure projects, said the government is working towards completing them over the next 18 to 24 months. ‘Our objective is to transform Hyderabad into a truly global city in 6-7 years and these projects are part of that larger goal,’ he said.
While the first phase of the Rs 14,132-crore, 72-km-long, three-corridor elevated metro rail project is planned to be commissioned during Prime Minister Narendra Modi’s visit in November, providing a major boost to the urban infrastructure, the Strategic Road Development Plan and the four mega flyovers such as the 11-km PVNR Expressway that connects the international airport, will provide a major boost. During a recent interaction with Telangana Builders Forum, the Minister outlined some of the key projects and mentioned these projects would keep the builders busy.
Why cement cos are going in for M&A
It’s a dog-eat-dog scenario in the Indian cement sector as the pace of mergers and acquisitions (M&As) has been robust in the last few years. ‘From FY14 onwards, capacity worth 59 million tonne per annum (MTPA) (13 per cent of FY17 capacity) changed hands in the Indian cement industry,’ said an IIFL Institutional Equities Research report. This includes acquisition of Jaiprakash Associates’ 21 MTPA cement assets by UltraTech Cement, which concluded recently.
Opting for inorganic growth or a brownfield expansion is both time and cost efficient. However, there are a couple of other factors too that have contributed to the ongoing M&A spree in the cement sector. First and foremost, cement demand is yet to see a significant revival. Coupled with an oversupply situation it is making survival difficult for smaller unorganised cement firms. For instance, in the southern region, one may increasingly witness a scenario of big fish eating the little ones. According to analysts, in the States of Andhra Pradesh and Telangana the total available capacity is nearly 85 MTPA and demand is around 20 MTPA. So, even if the demand scenario improves, the situation for small firms doesn’t get any better.
Jaypee plans to raise Rs.2k cr, to sell Bhilai Jaypee Cement
Debt-ridden Jaiprakash Associates said its proposed sale of entire 74 per cent stake in Bhilai Jaypee Cement Ltd for an enterprise value of Rs 1,450 crore is expected to be concluded by year-end and plans to raise up to Rs 2,000 crore through sale of securities.
In a notice to shareholders for AGM to be held on September 23, Jaypee Group’s flagship company Jaiprakash Associates said it has taken various steps to reduce its debt, including sale of cement plants.
To revive its business operations and repay debt, the company has divested a substantial portion of its cement business with a capacity of 17.2 MTPA to Aditya Birla Group firm UltraTech Cement at an enterprise value of Rs 16,189 crore.
‘The transaction stood consummated on June 29, 2017 and that has resulted in reduction of debt of approx Rs 14,000 crore, including repayment of outstanding loans to banks/FIs, part payment to holders of FCCBs, repayment of almost all outstanding fixed deposits and interest thereon and other priority payments,’the company said. Giving update on other proposed transactions, the company said it plans to sell entire 74 per cent stake in Bhilai Jaypee Cement Ltd to Orient Cement Ltd at a total enterprise value of Rs 1,450 crore, which is ‘expected to be consummated by December 31, 2017’.
Bhilai Jaypee Cement owns 1.1 MTPA clinker plant at Satna in MP and 2.2 MTPA cement grinding Unit at Bhilai, Chhattisgarh.
Jaiprakash Associates has also sought shareholders nod for an enabling special resolution to raise up to Rs 2,000 crore through issue of securities via routes like QIP. The amount would be used for capital expenditure, reduction of debts, general corporate purposes and for raising working capital require?ment for real estate business and other businesses.
Jaiparaksh Associates is a diversified infrastructure company and is engaged in segments as engineering, construction and real estate development, manufacture and marketing of cement, hospitality and sports management.
The company informed shareholders that in consultation with lenders it has finalised a Debt Realignment Plan (DRP) wherein a part of the total debt would be retained in the company and the residual debt would be transferred along with land and certain other assets as part of a Real Estate Undertaking to a SPV.
‘The company is focusing on its core area of strength i.e. Engineering and Construction and is bidding for various construction projects. Further, steps are being taken to strengthen its marketing network, strategies for marketing its products in cement & real estate space,’ the notice said. Jaypee group is facing a debt crisis and its group firm Jaypee Infratech has taken over by NCLT appointed IRP for recovery of bad loans.The group is facing huge protest from home buyers because of significant delays in delivery of projects and doubt over its financial health. Meanwhile, lenders of Jaiprakash Power Ventures Ltd have sought bids to sell at least 30 per cent stake in the company to recover some of their dues.
Emami Cement aims profit with Rs.2,000-2,200 cr sales in FY18
The Emami group’s cement arm said it was aiming at retail sales of Rs 2000-2200 crore with some profit in the first full year of operations in FY18. ‘We are looking at 3.2 million tonnes of cement sales in 2017-18 and look forward to some profit also,’ Emami Cement wholetime director & CEO Vivek Chawla said here. Emami Cement chief marketing officer Vinit Kr Tiwari said the net of GST, the company realisation for the year could be around Rs 1500 crore. The Emami Cement is aggressive in garnering marketshare in the six states it has forayed so far. By this fiscal the company will have six million tonnes of cement capacity from four million tonnes. ‘We are manu?facturing cement in Raipur, Chattisgarh (mother plant) and West Bengal. By January 2018, the Odisha plant will be operational,’ Chawla said.
Tiwari said the company will double its sales outlet from 4300 outlets by this fiscal to deepen its reach that will boost the market share to 10 per cent by 2018-19. The intregated cement plant (clinker and grinding unit) at Chattisgarh got operational in December 2016.
While West Bengal and Odhisa are grinding units, all are two million tonne capacity each.
‘We are getting good response in the all the markets we are into like Chattisgarh, Bengal, Jharkhand, Odisha, Bihar (just launched) and partially Maharashtra. In Bengal, Panagarh grinding unit is producing about 40 per cent of its capacity. but will be ramped up with better sales projection and sand crisis getting resolved.