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Bankruptcy Law – A game changer



With Bankruptcy process coming into effect, consolidation has become the order of the day in the sector, which is expected to change the industry pecking order.
Consolidation is in the full swing in the Indian Cement Industry. The pace has accelerated over the last four years. It has not been happening just because of operational reasons, but heavy debt built up by some players. Though the realisation that high debt is counter-productive has dawned on such players in 2015 itself, the pace of consolidation accelerated only in the last couple of years after such companies were set to be brought under the purview of the Insolvency and Bankruptcy Code (IBC), through its nodal agency – National Company Law Tribunal (NCLT).
Unlike the earlier buyout deals like Jaypee group, Lafarge and Reliance cement businesses, which had different reasons (including lower demand, governance etc.) for taking their companies for sale, besides mounting debt, the latest breed of consolidation in the cement sector is happening perforce under the hammer of NCLT, though cement industry per se is not passing through difficult times despite low plant load factors at around 65 per cent.
So far, bad debts of only two cement companies – Murli Industries and Kalyanpur Cement – have been resolved through NCLT, both of which went in favour of Dalmia Bharat. The completed deals involved 3 million tonnes and one million tonnes respectively. The third one, Binani Cement matter is hanging fire for the last few months, with two major bidders – Dalmia Bharat and UltraTech Cement – vying for the 11 million tonne capacity. Resolved cases
Murli Industries’ bankruptcy matter was resolved in December 2017 with the lenders favouring a deal with Dalmia Bharat (DBL). As per the resolution plan, DBL will cancel almost the entire equity of Murli Industries and pay its lenders Rs 3.5 billion in cash, which means a haircut of 80 per cent for lenders. As per the plan, DBL will infuse capital of Rs 690 million in Murli Industries to hold more than 90 per cent stake in the company. Dalmia will also repay other statutory dues such as taxes and salaries of workmen and employees.
Murli Industries had availed loan of Rs 9 billion, but with interest and penalty, its total outstanding rose to Rs 17 billion. Edelweiss Asset Reconstruction has owned 60 per cent of Murli Industries’ debt, followed by Bank of Baroda with 25 per cent. The remaining debt is with other asset reconstruction companies including ARCIL.
DBL has outbid the other players like JSW Cement, JK Lakshmi Cement and Star Cement, for acquiring the Patna-based Kalyanpur Cements. The concerned resolution, finalised in February 2018, is expected to be more than Rs 3.5 billion. Operational creditor Naresh Kumar & Company brought Kalyanpur Cement to the bankruptcy court in May 2017. The company owed Rs 6 billion to the banks and operational creditors, according to reports. Since 2014, the production of the company fell from an average level of ~7 lakh TPA (tonnes per annum) to 2.23 lakh TPA in FY17 (2016-17). The company reported a loss of Rs 9.5 million
for FY17.Binani – A test case
However, bids for Binani Cements is proving to be a test case for implementation of the IBC, which has become a statute in the first week of January 2018. It has taken a lot of twists and turns – first Dalmia Bharat bid was approved by the Resolution Professional Vijaykumar V Iyer based on the primary bids. Having no other option, UltraTech Cement, which has been vying for the acquisition has given a letter of comfort to Binani with a promise to commit much higher amount, prompting Binani Cement, the target defaulter company to seek an out of court settlement from NCLT, which was not an option available under the resolution process as evolved as of now. If Binani is allowed to get out of NCLT resolution process that will open up new avenues to the defaulting companies a new and better way out of the hitherto stringent process.
An Aditya Birla Group company, UltraTech has put in a Rs 72.66-billion bid for Binani Cement, Rs 7 billion higher than that of DBL’s offer. Bank of Baroda had moved NCLT, Kolkata in July 2017 after the company failed to repay Rs 39.7 billion debt.
Though the capital market was expecting another large and anticipated merger between ACC Ltd and Ambuja Cements Ltd to take place, it was shelved by the companies recently.
The process of insolvency resolution plan or IRP begins after any financial creditor makes an appeal in the adjudication authority under the IBC for commencing the IRP against any corporate defaulter. Once the application is submitted, a resolution professional is appointed to constitute a committee of creditors – financial creditors and operational creditors – to work on a resolution plan to revive the debt-stressed firm in a time-bound manner or dissolve it – with a cap of 180 days. Under IBC, the resolution plan must have approval of at least 75 per cent of the creditors.
Usually, companies opt for inorganic growth or a brownfield expansion, which are considered to be both time and cost efficient. ‘From asset pricing perspective, we feel that this is a better time to buy rather than build cement assets,’ said Puneet Dalmia, managing director for Dalmia Bharat Group recently.
Besides, demand for cement has been subdued for a couple of years, to which regional demand-supply gaps also contribute. For example, in the states of Andhra Pradesh and Telangana, the total available capacity is nearly 85 million tonnes per annum (mtpa), while demand is around 20 mtpa, posing a marketing challenge to regional manufacturers. Governance issues were affecting smaller companies leading to low profitability.
The earlier deals that have taken place before December 2017 were taken up ourside NCLT, i.e., based on commercial considerations. Jaiprakash Associates was the third largest cement maker in the country with annual capacity of 31.65 million tonne in 2014. It had sold 13.3 MT capacity in 2014-15 to repay debts. Thus, it has a long history of shedding cement assets over the last four years. Before IBC process was initiated, Jaypee Group has sold 21.2 MT (million tonne) of its capacity to UltraTech Cement for Rs 161.89 billion. Lafarge sold 13 million tonnes capacity to Nirma and Birla Corporation has bought 5.5 million tonne capacity of Reliance Cement. New pecking order
IBC, which was in the works for a few years now, has assumed its preliminary form in November 2017 through an ordinance, and later passed by Lok Sabha and Rajya Sabha in December, 2017 and January, 2018 respectively. The new code is expected to change the pecking order of the cement industry in the country, the second largest in the world, to a large extent in the coming years, even as Binani process is resolved. Binod Modi, Senior Research Analyst, Reliance Securities, said in a recent report that the consolidation in the cement sector is inevitable as there are about 20 large cement companies in India compared to four to five in the sector globally.Binani in NCLT-Timeline

  • July 2017 – Bank of Baroda files insolvency petition against Binani Cement in NCLT, Kolkata
  • Feb 24, 2018 – Committee of Creditors discusses resolution plans of all applicants
  • Feb 27- Dalmia Bharat-led consortium emerges highest bidder with Rs 63.50-bn offer
  • March 7 – UltraTech Cement raises bid to Rs 72.66 bn
  • March 13- NCLT seeks details of Dalmia Bharat selection process; resolution professional (RP) alleges fraud in Binani, submits application in NCLT
  • March 14- CoC favours Dalmia Bharat’s proposal; RP issues letter of intent
  • March 19 – NCLT adjourns case till March 22; UltraTech directly negotiates with Binani to pick up 98.43% stake for Rs 72.66 bn, subject to termination of IBC proceedings
  • March 20 – Dalmia Bharat-led consortium deposits 10% of bid amount
  • March 22 – UltraTech Cement and Binani Cements make allegations against RP; NCLT orders resolution professional to respond by March 26
  • March 27- On Binani Cement’s petition to terminate IBC proceedings, NCLT asks CoC to consider the proposal, while suggesting possible out-of-court settlement

– BS Srinivasalu Reddy

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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings




Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

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Wonder Cement shows journey of cement with new campaign




The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…


Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)




Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.

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