Cement

2. External environment:
2.1 CCI:
The Cement Corporation of India Limited (CCI) is a multi unit organization at present
having ten units spread over eight states with a total annual installed capacity of 38.48
lakh MT. Users can get detailed information related to the company's products, quality of
products, marketing network, finance, plants, offices and e-selling etc. One can also
submit complaint online related to the company and its activities.

2.4 Controversy
UltraTech
UltraTech in talks to buy Jayvees cement assets in Himachal
Written by Global Cement staff
Friday 21 February 2014
India: UltraTech Cement Ltd is in talks to buy Jayvees cement assets in Solan,
Himachal Pradesh, for US$644m, according to anonymous sources. This comes
shortly after UltraTech purchase of Jayvees Gujarat cement plant.
For Jayvee, subsidiary of Jaiprakash Associates Ltd, the deal will be another effort
towards trimming its US$8.54bn debt (as of 31 March 2013). The company sold
1.21km2 of land in Greater Noida to realty firm Gaursons India Ltd for US$241m
in May 2013. Jaypee is also close to finalising the sale of two of its three operating
hydroelectric projects to a consortium led by Abu Dhabi National Energy Co PJSC
for at least US$1.5bn.
UltraTech's cement manufacturing capacity increased to 59Mt/yr from 54Mt/yr
after it bought Jaypee's Gujarat plant. The company aims to increase its capacity to
70Mt/yr by 2015, according to Kailash Birla, senior executive president and
chief financial officer of UltraTech. The Solan assets, if acquired, will add
another 4Mt/yr of capacity. The grinding and blending unit and the cement plant in
consideration have capacities of 2Mt/yr each.


Acc
ACC net income drops to US$1.75bn in 2013
Written by Global Cement staff
Wednesday 12 February 2014
India: ACC's net income has fallen slightly to US$1.75bn in 2013. However its net
profit rose by 3% to US$174m. By business segment, cement sales fell slightly to
US$1.71bn in 2013. The Indian cement producer made the announcement in a
statement of consolidated auditedfinancial results. In its statement ACC made no
provision for a US$180m fine imposed on it by the Competition Commission of
India for alleged cartel-like behaviour as it believes it can successfully appeal the
penalty.
Published in Global Cement News

ACC commissions cement blending unit in Udupi
Written by Global Cement staff
Tuesday 11 February 2014
India: ACC has commissioned a cement blending unit at Padubidri in Udupi
district.
An ACC company spokesman said that the unit uses fly-ash from the thermal
power plant of Udupi Power Corporation in Udupi. The unit is capable of blending
30,000t/month of cement. Clinker from ACC's plant at Wadi in Gulbarga district is
used for cement production at the blending unit in Udupi district. The Udupi plant
caters to the cement requirements of Karnataka and Kerala states.


Ambuja Cements and ACC to see top-level rejig
Monday 10 February 2014
India: Ambuja Cements and ACC, the Indian arms of Holcim, are likely to see
top-level management changes in the coming months. Managing director (MD) of
Ambuja Cements, Onne van der Weijde and MD of ACC, Kuldip Kaura, have
offered to resign, according to industry sources. Additionally, the sources revealed
that Sumit Banerjee, the former MD of ACC who had quit to join Reliance
Cement, is likely to re-join ACC as the MD.
The management changes at ACC and Ambuja Cements have resulted from
restructuring of the parent company, Holcim, which has been underway since July
2013. Holcim has appointed Bernard Terver as the head of Asia, replacing Paul
Hugentobler, who retired in February 2014. Terver, a member of the Holcim
Executive Committee, has been appointed to head of a region that encompasses
Africa, the Middle East and the Indian subcontinent.
While van der Weijde is said to be unhappy with these management changes,
Kaura is said to have been uncomfortable with the new structure, in which ACC
will become a subsidiary of Ambuja Cements. Under the restructuring programme,
an India management committee that is headed by van der Weijde, was to oversee
the integration between the operations of Ambuja and ACC. The two MDs of
Ambuja and ACC had to report to van der Weijde, which did not go down well
with Kaura, according to unnamed sources. However, it's unlikely that Holcim will
take any decision in haste, especially before the restructuring is approved by the
Gujarat High Court, which is expected by April 2014.
Only after the court approval can Holcim receive full approval from the
Foreign Investment Promotion Board (FIPB), as currently it is only a conditional
approval that is subject to legal clearances. Any management change at this
juncture will lead to a lot of questioning, which will put the spotlight back on the
entire process.



Holcim
Holcim may delay cement plant construction
Written by Global Cement staff
Friday 21 February 2014
Philippines: Holcim Philippines has announced that it may delay the construction
of a proposed US$550m 2.5Mt/yr capacity cement plant in Bulacan province that
was due for commissioning in 2016.
The announcement was made due to the impending economic integration of the
Association of Southeast Asian Nations in 2015. Southeast Asian countries,
including the Philippines, will eliminate tariff rates on goods to facilitate free flow
of commodities under the Asean Free Trade Area.
"We have to plan as a region because the region is consolidating," said Eduardo
Sahagun, Holcim Philippines chief executive, adding that Vietnam and Indonesia
both possess excess capacity. Holcim Philippines made several investments in
2013 to boost supply, including plant upgrades in La Union and Misamis Oriental
provinces and the revival of a grinding facility in Mabini, Batangas, which will be
operational by the third quarter of 2014.
Sahagun said that the company's outlook on cement demand in the country
remained positive. "The growth scenario is the same but where the supply will
come from will change," Sahagun said.
Published in Global Cement News







Legal actions
Builders Association of India v. Cement Manufacturers
Association & Ors.
The CCI, through its order dated 20 June 2012, imposed a penalty of
approximately six thousand crores (approx. USD 1.1 billion) on cement
manufacturers in India after holding them guilty of cartelisation in the cement
industry. The penalty has been imposed at the rate of 0.5 times the net profit of
such manufactures for the past two years. Additionally, the Cement Manufacturers
Association (the CMA) has been fined 10% of its total receipts for the past two
years for its role as the platform from which the cartel activity took place.

Brief facts
The decision of the CCI emanates from information filed by the Builders
Association of India on 26 July 2010 against the CMA and ACC, Gujarat Ambuja
Cements Limited (now Ambuja Cements Limited), Ultratech Cements, Grasim
Cements (now merged with Ultratech Cements), JK Cements, India Cements,
Madras Cements, Century Textiles & Industries Limited, Binani Cements, Lafarge
India and Jaiprakash Associates Limited.
On 15 September 2010, the CCI formed a prima facie opinion on the contravention
of the Competition Act, 2002 (the Competition Act) and directed investigations in
the matter. On 31 May 2011, the Director General (DG) submitted his report
(the Report) detailing contravention of the Competition Act by the respondents.
The CCI called for comments and objections from the respondents, and after
considering their submissions came to the conclusion that the respondents had
contravened sections 3(3) (a) and (b) of the Competition Act.
Before going to the principal findings of the CCI, it is important to note that the
CCI restricted itself to the cement companies named in the information owing to
the fact that such companies were the prominent participants in the market and
were key players in the whole arrangement.
Similarly, as to the period of contravention, the CCI limited the period from 20
May 2009 to 31 March 2011. However, it made clear that this limitation was only
relevant to the present case and would be independent of other cases.

Directions of the CCI
In cartel cases, the CCI has the power to to fine parties up to three times of its
profit for each year of the continuance of the cartel or 10% of its turnover for each
year of the continuance of the cartel, whichever is higher. The turnover and profit
for the cement companies were examined and accordingly the following penalties
were levied on the cement companies.
Company Penalty (INR in Crores)
ACC Ltd. 1147.59
Ambuja Cements Ltd. 1163.91
Binani Cements Ltd. 167.32
Century Textiles Ltd. 274.02
India Cements Ltd. 187.48
J K Cements Ltd. 128.54
Lafarge India Pvt. Ltd. 480.01
Madras Cements Ltd. 258.68
Ultratech Cement Ltd. 1175.49
Jaiprakash Associates Ltd. 1323.60
In addition, the CMA was fined 10% of its total receipts for the past two years.
The respondents have been directed to pay the above penalties within 90 days of
the receipt of the CCI order.
The CCI also directed the companies to cease and desist from indulging in
agreement or understanding on prices, production and supply of cement in
the market . Similarly, the CMA has been directed to disengage and disassociate
itself from collecting wholesale and retail prices through the member cement
companies and also from circulating the details on production and dispatches of
cement companies to its members.
- Karan S. Chandiok
Competition Commission of India slaps Rs. 6307 cr penalty on
cement cartel

The Competition Commission of India (CCI) on Thursday imposed a
whopping Rs.6,307-crore penalty on 11 leading cement firms for forming a cartel
and colluding to charge higher prices from consumers.
The maximum fine was imposed on Jaiprakash Associates at Rs.1,323.6 crore
followed by Aditya Birla Group's Ultratech Cements (Rs.1,175.49 crore), Ambuja
Cements (Rs.1163.91 crore) and ACC (Rs.1,147.59 crore).
Other companies found guilty are Grasim Cements (now merged with Ultratech),
Lafarge India, JK Cement, India Cements, Madras Cements, Century Textiles and
Binani Cements.
The fine was fixed at 50 per cent of their profit during 2009-10 and 2010-11. The
industry body Cement Manufacturers Association (CMA) has also been
fined Rs.73 lakh. They have been directed to deposit the penalty within 90 days.
CCI found cement makers had violated the provisions of the Competition Act,
2002, which deals with anti-competitive contracts, including cartels.
"The act and conduct of the cement companies establish that they are a cartel. The
Commission holds the cement firms acting together have limited, controlled and
also attempted to control the production and price in the market in India," CCI
said in its 258-page order.
The order was passed following a probe by director general (investigation) on a
complaint filed by the Builders Association, which has hailed the order saying it
was long-pending and the penalty could have been higher.
Reacting to the order, CMA and some of the affected cement manufacturers said
they would decide on the future course of action after reading the order.
A law firm representing ACC and Ambuja Cements said they would appeal before
a tribunal. CCI, which is the equivalent of the European Commission, is headed
by Ashok Chawla.
'Reduce' rating to Ultratech Cement shares: Impact of
Jaypee asset buy

After prolonged speculation, UltraTech Cement Ltd is looking to acquire the cement
assets of Jaiprakash Associates Ltd in Gujarat for a consideration of R38 bn. While the
transaction could be earnings dilutive in the near term for UltraTech Cement (capacity
utilisation of 65% at Gujarat), it helps UltraTech Cement further consolidate its position in
the West and allows JAL to redeem a fraction of its debtR36 bn out of consolidated debt of
R630 bn.
UltraTech Cement shall take over all the assets and liabilities of the unit and the balance
consideration shall be paid by issue of equity shares of UltraTech Cement to Jaypee Cement
Corporation Ltds (JCCL) shareholders, subject to a maximum of R1.5 bn. We note that the
Gujarat plant operated at a capacity utilisation of 65% for FY13 and also includes (i) 58 MW
of captive power plant, (ii) 30 MW of DG (diesel generator) capacity, (iii) 500 mt (90 years)
of limestone reserves, and (iv) 2,500 DWT barges for transportation.

UltraTech Cements ownership of the Gujarat cement plant helps it further consolidate its
share in the West market (extant capacity of 8 mtpa pre-acquisition), and prevents the
entry of an aggressive competitor, implying improved pricing discipline. However, the
acquisition shall likely be earnings dilutive as (i) the plant currently operates at a utilisation
of only 65% in its second year running, not contributing much to operating profits, and (ii)
the deal shall result in additional debt of R36.5 bn. At an enterprise value of R38 bn
(138/share of UltraTech Cement), Ebitda (earnings before interest, taxes, depreciation and
amortisation) contribution from the plant would be approximately R4.5 bn in FY15e in an
optimistic scenario, assuming (i) capacity utilisation of 73%, (ii) realisations of
R5,534/tonne and (iii) profitability of R1,265/tonne.
Assuming a pessimistic scenario in which the extant operational performance of JCCL
Gujarat is sustained at (i) capacity utilisation of 65%, (ii) realisations of R4,035/tonne and
(iii) profitability of R49/tonne, the deal shall dilute Ultratech earnings by R13/share (12%)
for FY2015e. We maintain our Reduce rating on the

Holcim's rejig deal in ACC and Ambuja
Cement detrimental to minority shareholders

Holcim, through its complex rejig deal, has restricted minority shareholders'
choice by using Ambuja Cements cash for transferring stake in ACC

The multi-layered deal announced by Swiss cement maker Holcim to rejig its
Indian operations by way of merger and acquisition between ACC, Ambuja
Cement and Holcim India is detrimental to
minority shareholder ofAmbuja Cement, feels analysts.

Several experts are also slamming the complex deal. In an interview to CNBC-
TV18, Anil Singhvi, former managing director and chief executive ofAmbuja
Cement and chairman of Ican Investment Advisors, has criticised the rejig of
Indian operation by Holcim. "The Rs3,500-crore reserve of cash sitting out on the
balance sheet of Ambuja has been taken out by paying a premium. This is not a
merger, there is no synergy and there is no advantage. In fact, Ambuja will dilute
its shareholding by almost 30% and it cannot be earnings per share (EPS)
accretive. According to me, this is nothing short of a fraud played out on the
minority shareholders in India," he said.

In a research report, Emkay Global Financial Services said, "Prima facie the
restructuring is detrimental to minority shareholder of Ambuja Cement as Ambuja
Cement will be parting away with its huge cash balance of Rs3,500 crore, which is
more than 90% of its CY12 cash on books, without any EPS accretion."

While downgrading Ambuja Cement to 'sell' with a reduced target price of Rs175
(from Rs195) Religare Capital Markets Ltd, in a research note, said, "We believe
the acquisition would put Ambuja Cement's minority shareholders at risk as they
would now be stakeholders in a less-efficient company, ACC."

As per the rejig plan, Holcim India would be merged with Ambuja Cement.
Holcim India then transfers its 50.01% stake in ACC to Ambuja Cement. This
would make Ambuja Cement the holding company of ACC. Post the complex
merger plan, Holcim (the parent) would hold 61.39% stake in Ambuja
Cement while Ambuja Cement would hold 50.01% stake in ACC.

In the first step, Ambuja Cement would acquire 24% stake in Holcim India for
Rs3,500 crore cash. Ambuja Cement then would issue its 584 million shares to its
parent for the balance 76% stake in Holcim India. Eventually, Holcim Indias 9.8%
stake in Ambuja Cement will be cancelled.

According to Motilal Oswal Securities Ltd, the deal is marginally earning per
share (EPS) and return on capital employed (RoCE) accretive for Ambuja Cement.
"The merger will be EPS/RoCE accretive for shareholders of Ambuja Cement as
the company would deploy the idle cash of Rs3,500 crore (earning 6-8% yield), on
acquiring ACCs assets at attractive valuations of about $110 per ton, which is at a
steep discount to current market transaction value (recent M&A) and Greenfield
capex cost," the brokerage said in a report.

Shares of ACC Ltd and Ambuja Cement fell sharply on Thursday following major
restructuring announcement by Holcim, the parent company of both these cement
producers. Ambuja was the worst hit as its shares fell over 10.5% to an intra-
day low of Rs163.2 narrowly missing its 52-week low of Rs162.5 on the
BSE. Ambuja Cement ended the day 10.5% down at Rs171 on the BSE. ACC, on
the other hand, hit an intra-day low of Rs1,155. Despite making a recovery later,
ACC closed the day 3% down at Rs1,194 on the BSE, while the benchmark Sensex
ended 1.42% down At 19,804.7.