INDIA: Cement industry to consolidate on weak demand

India's cement sector may see consolidation due to weak demand, India Ratings said on Thursday.

Additionally, the rating agency expected heightened consolidation activity in South India, driven by the region's over capacity issues. The two acquisitions in the cement industry post January 2014 totaling $474 million are aligned to our expectation, the rating agency said in its report.

The genesis of the current bout of consolidation could be the Competition Commission of India's (CCI) in June 2012 order on 11 cement companies against coordinated supplier actions, it said.

The possible acquisition targets include cement companies or cement manufacturing facilities (which are part of over leveraged conglomerates) with cost-effective access to raw materials and energy or a locational advantage to optimise freight costs.

However, India Ratings believes facilities with limited viability due to a weak structural cost position will find few takers.

The agency expects low demand due to a continued weak economic activity and the upcoming elections to accelerate the consolidation activity in FY15. Cement production grew 2 per cent in 3QFY14 from 5.9 per cent in the second quarter of fiscal year 2013-14 (FY14).

The construction sector grew (major consumer of cement) 0.6 per cent in the third quarter of FY14 from 4.3 per cent in the previous quarter.

Growth for the cement industry for the fourth quarter of FY14 and the first quarter of the next fiscal year (FY15) is likely to be in the range of 2-3 per cent due to subdued demand. Also, profitability of integrated players and small players could come under pressure in FY15.

However, India Ratings drew some comfort from stable, low coal prices and steady exchange rates which will cushion margins.

The demand growth will be supported by an expected increase in demand from the rural sector and Tier II and Tier III cities, the agency said in its report.

MALASYA: Lafarge rated 'market perform': Kenanga

Kenanga Investment has initiated a coverage on Lafarge Malaysia Bhd with a "market perform" call and target price of RM9.50.

Lafarge is the largest public listed domestic cement manufacturer with a market share of 41.6 per cent in the Peninsular Malaysia based on production capacity.

The brokerage has a positive outlook on the group, due to its strong balance sheet, the bullish sentiment on the construction sector and growth from expansion and exports in the long term.

"In line with our bullish view on the construction sector, we expect demand for cement to improve due to significant pipeline flows from incoming Economic Transformation Programme and 10th Malaysia Plan projects,” Kenanga said in its note.

It said Lafarge is likely to sustain decent sales growth in 2015 following its plans to increase production capacity by 1.20 million metric tones or 9.3 per cent from its existing capacity of 12.95 million metric tonnes.

Lafarge, which engaged in the manufacture and sale of cement, ready-mixed concrete and other related building materials, currently exported between 20 and 30 per cent of its products.

"In the longer-term, we believe Lafarge should be able to gain new markets in Myanmar and other countries in the Asian region," it said.

In the mid-term, Kenanga keeps a positive view on the cement industry as the total amount of contracts to be awarded may reach RM244 billion, coupled with the present confirmed property projects gross development value of RM181 billion.

INDONESIA: Indocement Records 5.2% Growth in Profit in 2013

Indocement Tunggal Prakasa, the second-largest cement producer in the country, reported a 5.2 percent increase in profits last year as prices for building materials surged.

Net income rose to Rp 5.01 trillion ($440 million) last year from a year earlier, the company said in a press statement released on Tuesday.

Its revenues grew 8.1 percent to Rp 18.69 trillion from last year.

“The company used the good market momentum to increase prices, contributing to the increase in net revenue,” Indocement said, saying that its domestic selling price of cement increased by an average of 5 percent per ton in 2013.

Its sales volume of cement and clinker rose 1.2 percent to 18.2 million tons last year.

Still, profit growth at the company was much slower than the 32 percent recorded in 2012.

Daniel Lavalle, Indocement president director, said the company faced a very competitive market, while the rupiah’s decline increased expenses.

“A number of new competitors have entered the market, mostly importing cement from nearby countries. Other companies have declared their intention to enter the Indonesian cement market,” Lavalle said in the statement.

Indocement’s market share slipped to 30.4 percent of Indonesia’s 58 million-ton domestic sales last year.

In the previous year it had 32 percent. Total domestic sales grew 5.5 percent.

“Other challenges came from rupiah depreciation, which put pressure on production costs,” Lavalle added.

Last year the currency fell 26 percent against the US dollar as investors fled the country on concern of US tapering and Indonesia’s current-account deficit.

The company spent Rp 2.2 trillion in capital expenditure last year, investing in a new mill with a capacity of 1.9 million tons, and two new projects in Citeureup, West Java.

It also invested in a new batching plant, mixer trucks and a limestone quarry to support its expansion into the ready-mix cement business.

This year, Indocement expects domestic demand to grow by 6 percent, supported by demand from infrastructure projects, despite expectations of moderate growth in real estate development.

PERU: Despacho total de cemento bajó 0,51% en el primer bimestre

La producción nacional de cemento acumuló 1'657.696 toneladas métricas (TM) entre enero y febrero de este año, lo que implica una reducción de 1,20% si se compara con el resultado del mismo periodo del 2013, según mostró un reporte de la Asociación de Productores de Cemento (Asocem). 

En línea similar, los despachos totales de cemento (ventas en Perú y envíos al exterior) alcanzaron las 1'672.023 TM en el primer bimestre del año, mostrando un descenso interanual de 0,51%.

Según detalló Asocem, las ventas de cemento en el mercado local sumaron las 1'639.454 TM, en tanto que las exportaciones de dicho insumo fueron 32.569 TM. 

Pablo Otero, analista de la consultora Maximixe, dijo que los resultados responden a la paralización de las obras del proyecto Vía Parque Rímac. 

"Además, el tramo dos de la Línea 1 del Metro de Lima ya está prácticamente culminado, por lo que no ha habido mucho consumo de cemento", añadió Otero, según cita Andina.

BANGLADESH: No claimant for Padma Cement property

Nobody is claiming property of Padma Cement Limited, a publicly listed company dissolved two years back.

A public notice was issued on Mar 6, asking the claimants of the company’s property or creditors to turn up with their claims in 15 days.

Company’s liquidator Barrister Moksedul Islam told that nobody had contacted him, though 13 days had passed since the publication of the notice.

He said if former officers, employees and workers, other creditors and shareholders had any dues with the company they could contact him with documents and detailed description.

Padma Cement was enlisted on the country’s capital market in 2002 and its dissolution process started in November, 2012 at the decision of the board of directors.

According to information at the Dhaka Stock Exchange, the company suffered continuous losses from 2002 to 2010 before making a small profit in 2011.

Padma Cement gave dividend to its shareholders only in 2002.

According to DSE information, general shareholders are holding 99.64 percent of the company's shares and the sponsors only 0.34 percent.

Dhaka University Accounting Department teacher Prof Mizanur Rahman found it surprising the company repeatedly incurred losses for consecutive years and then folded up after posting a promit.

It was equally unusual, he said, that no creditors had turned up for their dues yet.

INDIA: France's Vicat To Buyout Partner Sagar Cements In India JV

French cement maker Vicat Group is likely to buyout its Indian partner Sagar Cements’ 49% stake in JV, Vicat Sagar for a consideration of R4100 Cr. The deal marking consolidation in the cement industry would see Vicat paying $120 per tonne of capacity.

The buyout would put Vicat’s name in the top 10 cement companies in the country making it the second largest in southern India. The group has has 7.75m tons of capacity in India and commenced production at its Gulbarga JV plant in January last year.

The company was planning to increase its capacity by 5.5m tons of the plant on two phases first by 2016-17 and later in 2018-19. The company had said that the expansion at Gulbarga, involving two phases with each phase costing around R1,800 Cr, will add 2.75m tons of capacity by 2016-17 and another 2.75m tons two years from then.

The Vicat Group, with 21 million tonnes of capacity reported a growth of 12.7% in India sales at 155 million euros in 2013. With operations spread across 11 countries the group gets a chunck of its EUR 2.3 bn revenues from outside France.

In 2010, it had acquired a controlling stake in Andhra businessman turned politician YS Jagan Mohan Reddy's Bharathi Cement. Vicat was also planning to buy contolling stake in Sree Jayajothi Cements, however in August, the Indian unit of Irish building materials company CRH bought Sree Jayajothi Cements from Shriram Group for R1,400 Cr.

Sagar Cement Limited, which commenced operations in 1985, manufactures cement. Currently, the company has clinker manufacturing capacity of 2.00 mtpa and cement manufacturing/grinding capacity of 2.69 mtpa. It manufactures ordinary portland cement, portland pozzolana cement, and sulphate-resistant cement.

Experts expect the industry to see some consolidation after the competiton commission fined the top cement companies for operating as a cartel in 2012.

Recent deals in this space, Chettinad Cement Limited was acquiring Hyderabad based Anjani Portland for an enterprise value of R360-380 C; Jaiprakash Associates was in talks to divest 74% stake in two cement JV’s with SAIL to Holcim owned ACC for R2900 Cr; UltraTech bought Jaypee’s Gujarat unit for R3800 Cr.

INDIA: Chettinad Cement set to buy Anjani Portland

Chettinad Cement Corporation is set to acquire controlling interest in Anjani Portland Cement by entering into a share purchase agreement with the promoters of the latter.

In a notification to the BSE on Wednesday, Anjani Portland Cement said that the promoters of the company were proposing to sell up to a maximum of 1.13 crore shares, representing 61.62 per cent of the voting equity capital. A draft share purchase agreement to that effect was approved by the board of directors of Anjani Portland Cement.

Meanwhile, Motilal Oswal Investment Advisors has come out with a public announcement on behalf of Chettinad Cement for acquisition of up to a maximum of 47.82 lakh equity shares from public shareholders, constituting 26 per cent of the paid-up capital, at a price of Rs. 61.75 per share.

However, post-acquisition, the total shareholding and voting rights of Chettinad Cement in the target company would be less than or equal to 75 per cent, Motilal Oswal said in its announcement.

Shares of Anjani Portland Cement closed at Rs. 55.45 on the Bombay Stock Exchange on Wednesday.

EGYPT: Italcimenti reaffirms confidence

Italy’s Italcementi Group, the world’s fifth largest cement producer, reaffirmed its confidence in the Egyptian market despite political and economic instability, expressing trust in the country’s future, said Chief Operating Officer Giovanni Ferrario Thursday.

Ferrario made the statement during a ceremony in Egypt’s Smart Village to mark Italcementi Group’s 150th anniversary and celebrate 10 years of operation in the country. The group’s Suez Cement Group of Companies (SCGC) also launched, at the event, a new branding system for their products called “i.nova”.

By grouping each type of cement and concrete according to its usage, the “i-nova” system helps customers to select products for construction projects, said Bruno Carre, CEO of Suez Cement.

During the ceremony, Carre said that despite the recent turmoil in Egypt, the company has continued to invest and develop their plants. “Our 10 years in Egypt represent a great achievement, during which we have been bringing our facilities and our products up to international standards,” he said.

SCGC, which employs more than 3,000 people, initiated in February a €5m waste-treatment plant that will turn pre-stored waste to fuel. According to the company, the new facility is the first in Egypt.

Natural gas shortages are one of the greatest challenges to Suez Cement’s operation in Egypt, Carré told Daily News Egypt in November. As a result of inadequate fuel supplies, Medhat Stephanos, head of the cement industry at the Federation of Egyptian Industries, reported last week that cement production has been cut in half in recent months.

The Ministry of Petroleum, however, has contested the assertion that declining cement production was linked to fuel shortages. It supplied cement factories with 65% of the contracted quantities of natural gas in January and February and fulfilled remaining energy needs with diesel, it reported in a 10 March statement.

Prime Minister Ibrahim Mehleb on 9 March met with Stephanos and the ministers of industry, petroleum, electricity and environmental affairs to discuss solutions.

SRI LANKA: Thatta Cement grinding plant on hold

Thatta Cement said in a Karachchi stock exchange filing that Sri Lanka Ports Authority has not executed a land lease agreement with the company, despite "basic engineering being completed."

The cement plant is expected to have "operational conflicts" with a car transshipment facility, the filing said.

An environmental impact study is being conducted on industries around the port.

It was feared that cement dust from the plant would settle on new Indian-made cars being transshipped via the port.

An official familiar with Thatta Cement said the company respected environmental regulations and will comply with any requirements in Sri Lanka and they awaited the final environmental report.

However it was difficult to completely eliminate dust, he said.

Sri Lanka Ports Authority Chairman Priyath Wickrema said they were trying to find a solution to the problem as Sri Lanka still imported a lot of cement and it could use another grinding plant.

AUSTRALIA: Adelaide Brighton Ltd stock sinks 13.6%

On Friday building material manufacturer Adelaide Brighton Ltd (ASX: ABC) shocked investors when it announced that a major cement customer had decided to construct its own facilities for the supply of cement in South Australia. With SA being Adelaide Brighton’s home state where it enjoys a solid and entrenched market position, its customer’s move has certainly come as a surprise.

The customer loss is expected to lead to a decline of around 120,000 tonnes of cement and could affect the company’s pre-tax profit by $15 million in 2016. It equates to a potential hit to net profit of around 7%, given the company just reported NPAT of $151 million for its financial year ending 31 December 2013.

The drop in Adelaide Brighton’s share price means the stock has now significantly underperformed its peer group – which includes Boral Limited (ASX: BLD), James Hardie Industries plc (ASX: JHX) and Brickworks Limited (ASX: BKW) – over the past 12 months.

Foolish takeaway

Given the lead time involved in the contract loss, there is a good chance Adelaide Brighton’s management will be able to find new avenues to replace the sales volume. It’s important that management does, as maintaining high volumes is crucial to achieving efficiencies and maximising the leverage from the firm’s high fixed cost base.

With the stock trading on a higher forecast dividend yield and lower multiple than many of its peer group, the market may have over-reacted and potentially created a long-term buying opportunity in this well-run business for investors who are prepared to look past the short-term gyrations.

NIGERIA: Unicem begins construction of N84b second cement line

The United Cement Company of Nigeria Limited (Unicem) a leading manufacturer and supplier of cement in the South-South and South-East of Nigeria is investing N84b naira in an additional 2.5m metric tons (state of the art) cement line to double the existing capacity to 5 million metric tons per annum by 2016 as well as consolidate its position as Nigeria’s third largest manufacturer of cement in the country.

A Chinese construction firm Sinoma Group is constructing the 2.5m metric tons new cement line. The company is reputed for cement plant construction across the globe with track record of project delivery from previous projects handled around the world. The project includes the building of a new 45 megawatts captive power plant (CPP) by Wartsila Nigeria Limited.

Work on the project has already started. The cement giant is getting technical expertise and support for this project from its shareholders who are global cement majors.

Managing Director of Unicem Olivier Leonir said cement demand in the country has continued to grow nationally and regionally specially within the South-South and South-East regions with demand currently growing at about 12 percent per annum.

Leonir who was addressing Journalists Tuesday at the Conference room of the company corporate Headquarters, Diamond Hill, Calabar, Cross River State said the project has a lot of economic and social benefits to the people of Cross River State and its neighboring communities a the project will create direct and indirect employment and growth of the local economy of the people.

The managing Director said “Unicem has strong commitment to develop local capacity through various initiatives such as the Unicem Community Development Initiative (UCID) and Graduate Trainee Scheme, we have been enlisting and training young people from the community as mechanical technicians and training of young Graduate Engineers to fill the local manpower gap.”

Leonir said Unicem is currently building a N5 billion 20km cement evacuation road infrastructure to cater for the expected traffic increase and reduce the movement of articulated vehicles within the Calabar metropolis when the project is completed.