Shree Cement overtakes ACC to commission world's largest kiln in UAE

Shree Cement has surpassed ACC Ltd to operationalise the world’s largest cement kiln at Ras Al Khaimah in the UAE.

According to sources, Shree Cement has come up with a kiln capacity of 14,500 tonne per day (tpd) in its plant in the UAE which is 2,000 tpd higher than ACC’s Wadi II Plant in Karnataka.

ACC said one of its lines in its Wadi II plant has the company’s largest kiln with a capacity of 12,500 tpd. Sources suggested that ACC's Wadi-II plant so long had held the distinction of being the largest cement kiln globally which now has been overtaken by Shree Cement, albeit in the UAE.

Against ACC’s total installed capacity of 33.41 mtpa, Shree Cement’s current installed capacity stands at 41.90 mtpa.

Kiln capacity is essentially a plant’s capacity to produce Portland and other types of cement. A kiln is used in the pyro-processing stage of the manufacturing process, where calcium carbonate is made to react with silica-bearing minerals in order to form a mixture of calcium silicates.

Shree Cement, the country's second largest cement manufacturer invited Sheikh Saud Bin Saqr Qasimi, ruler of Ras Al Khaimah and a joint announcement over the new kiln capacity is likely to be made soon.

“I had invited Qasimi to come to Kolkata and he has responded to my request. We will meet over lunch at our home today (Thursday) and discuss about the cement plant in UAE as well as the economy. Some announcement may be made thereafter,” H M Bangur, Managing Director, Shree Cement told Business Standard.

In January 2018, Shree Cement had acquired a 93 per cent stake in the 4 mtpa Union Cement Company, the largest and most profitable cement firm in the UAE, at an enterprise value of $305.24 million.

At the time of acquisition, Bangur had stated that since Union Cement was about 40 years old, two of the kilns has to be completely discarded and another was shut, which left Shree Cement with only one kiln that was put up in 2006. However, the plant is located within 1 km of Saqr Port in UAE which gives it access to key export destinations such as the Gulf Cooperation Council (GCC) countries, Africa and South Asia.

Sources said a feasibility study has also been undertaken on reviving the third closed kiln.

Although analysts remained sceptical about Shree Cement's entry into the UAE, arguing that a low return on equity is expected, the company acquired Union Cement for $76 a tonne, which is lower than $84 a tonne paid by UltraTech Cement in 2010 to acquire the 3.2 mtpa Dubai-based ETA Star Cement for $269 million.

During 2018-19, Union Cement made a net profit of $9.79 million on a turnover of $114.60 million. EBITDA stood at $19.81 million.

Industry officials said the total capacity in the GCC is pegged at around 142 mtpa across 52 facilities, with Saudi Arabia alone accounting for about 51 per cent. UAE has the second-highest installed capacity at 39 mtpa, but consumes only half the production domestically. The rest is exported primarily across GCC and East Africa.

Shree Cement to replace YES Bank in Nifty50 from Mar 27; surges 6%

Shares of Shree Cement surged 6 per cent to Rs 25,199.9 on the National Stock Exchange (NSE) on Wednesday after the exchange announced its inclusion in the benchmark Nifty50 index with effect from March 27, 2020.

The cement maker pipped Dabur and Godrej Consumer Products (GSPL), who were among the front-runners for index inclusion, to join Ultratech Cement as cement manufacturers in the bluechip company index. 

Meanwhile, most analysts tracking the stock do not see any upside in it given all the positives are already priced-in.

"We see strong downside risk to the margins due to competition from new capacities and increased likelihood of leakage on volumes coupled with widening gap between A and C category brands. Stretched valuations with EV/EBITDA of 20x and P/E of 38x FY22E and flattening earnings growth leaves no scope for margin of safety," wrote analysts at Prabhudas Lilladher in its note dated February 17. They maintain 'reduce' rating on the stock with a target price of Rs 19,500.

Those at Motilal Oswal Financial Services (MOFSL), too, do not see any uptick in the stock as, they believe, its potential market share gains over the next three years are already priced in. They have 'neutral' rating on the stock.

The Kolkata-based cement manufacturer will replace private lender YES Bank in the index. The bank was also excluded from the benchmark S&P BSE Sensex in December 2019. READ HERE

At 10:00 am, the lender was trading 0.86 per cent lower at Rs 34.75 on the NSE. The stock hit an intra-day low of Rs 33.6, down 4 per cent. In comparison, the Nifty50 index was trading 0.7 per cent higher at 12,076.

The stock of the bank has turned highly volatile over the past few months owing to various issues including its fund-raising plans. As per the latest communication by the bank, it has received non-binding expressions of interest (EoIs) from several investors including J.C. Flowers & Co, Tilden Park Capital Management, OHA (UK) LLP (part of Oak Hill Advisors), and Silver Point Capital.

The bank and its financial advisors are in discussions with these investors on commercial terms. The investments, including pricing and size of the stake to be acquired, are all subject to regulatory approval, the bank said in an exchange filing.

Besides, due to the ongoing talks with potential investors, YES Bank has deferred the announcement of its December quarter (Q3) results till March 14, 2020. 

In the past three months, the stock has plunged 47 per cent on the NSE, as against a per cent rise in the Nifty50 index during the period.

Shree Cement's Dec-quarter pre-tax profit up 2.8% at Rs 409 crore

Under muted demand conditions, Shree Cement posted a 2.8 per cent rise in its profit before tax (PBT) at Rs 409.7 crore during the December quarter, while revenue remained flat at Rs 3,146 crore. The PBT in Q3 of the last fiscal year stood at Rs 398.5 crore.

Shree Cement to enter western India market in the coming six months

Shree Cement, second largest company in the segment, will be debuting in the West Indian market in the coming six months, with a 2.5 million tonne per annum (mtpa) grinding unit near Pune.

“It will be our maiden entry into Maharashtra and cater to demand for the western part of the state,” H M Bangur, managing director, told Business Standard.

Investment in the plant, spread across 65.7 acres, is Rs 625 crore. It doesn’t have linkages to limestone reserves and is getting this from a Shree unit near Kodla village in Karnataka.

The idea is to initially sell in the Pune-Ahmednagar-Navi Mumbai-Aurangabad area. “We will see how it works in the next two-three years and then only will get to know if we have set up a capacity the market can absorb,” said Bangur.

According to Yes Securities, West India has total installed capacity of 70 mtpa. UltraTech Cement is the largest at 15.3 mtpa in Maharashtra and 12.5 mtpa in Gujarat. Followed by Ambuja Cement with 11.5 mtpa. Shree Cement is poised to enter when demand is recovering and prices have stagnated on the higher side. According to market sources, prices in the western region were hiked by Rs 20 a bag (50 kg) to Rs 335-340 in early January and another hike of Rs 10 is likely in the near term.

In the near past, says ratings agency ICRA, demand in Gujarat was affected by labour and water scarcity; in Maharashtra, it was positively driven by infrastructure and affordable housing.

Asked about the tepid market condition, Bangur said, “Indian cement consumption at 350 kg per person per year, on the average, is half the world’s average; it can well be at 600-700 kg. Demand for cement is bound to increase.”

Shree has targeted a capacity of 55 mtpa by 2023 and 75-80 mtpa by 2026. The expansion into western India is part of this. Strong in the northern region, Shree has been eyeing a national presence since 2016, when it started to acquire land for forays into eastern and southern India.

In 2018, it commissioned a plant in Karnataka thereby entering south India. It had entered the eastern market four-five years before, with a plant in Jharkhand and in Bihar. And, is on the lookout for another facility in West Bengal, where it is in the process of acquiring land. It is also readying a 2.5 mtpa grinding unit in Odisha.