India's shrewd consolidator
The Indian cement market is still caught in the grips of consolidation and Dalmia Bharat Cement Ltd (DBCL) is positioning itself to be a strong player going forward with the news that it is ready to acquire Kalyanpur Cement. Dalmia Bharat Group already states its mission is to be in the top two for every business in which it is involved, which includes power, sugar and refractories.
While the addition of the Kalyanpur Cement plant in Bihar would add just 1Mta to the Dalmia Bharat capacity, shareholder approval has also been given for the merger of OCL India Ltd (formerly Orissa Cement) with the assets of DBCL, which will restructure and simplify the company's operations in east, northeast and southern India.
Already ranked No 4 cement producer in India
The cement producer became the fourth-largest Indian cement manufacturer at the end of 2016 with a cement capacity of 25Mta, which represents rapid growth from just 1.25Mta of cement capacity in 2005. As of October 2017, the company operates 11 cement plants across eight Indian states with 12.1Mta of capacity in the south, 12.9Mta in the east and 3.6Mta in the northeast. This includes the subsidiaries Calcom and OCL. In the past it also acquired Adhunik Cement, Bokaro Jaypee Cement and at the end of 2017 DBCL bought Murli Industries, which owns a 3Mta cement plant.
Capex expansion
A US$333.3m capex programme will be spent on ramping up cement capacity within the group to 48Mta by the end of 2019, according to the India Brand Equity Foundation (IBEF). The process is underway, not only with acquisition plans but also through greenfield production at Belgaum in Karnataka, where a 2.5Mta plant has been commissioned.
Moreover, DBCL was the preferred bidder for the limestone (Kesla II) block in Raipur with reserves of 215Mt. There are also plans to expand capacity in the south at Gulbarga where environmental clearance has been given on a 4Mta cement plant with a 40MW captive power plant. The Dalmiapuram plant in Palangantham village, Ariyalur Taluk, similarly will see capacity grow from 3.4Mta to 4Mta after the completion of a brownfield expansion project.
Meanwhile, OCL India Ltd received local support for a new 2.25Mta plant in Rajgangpur, next to the existing 4Mta plant in September 2017. The Odisha production of OCL is also currently being expanded with an investment of US$2.9m. In addition, the OCL Salboni (Godapiasal) grinding plant will undergo a debottlenecking programme to bring its capacity to 1.75Mta in the first phase and an extra 2.25Mta of capacity will be added in the second phase.
Cement volumes increasing
The latest financial information from the 2QFY18 and 1HFY18, ended September 2017, states that cement volumes for DBCL were 3.64Mt and 7.64Mt, respectively – up six per cent YoY. EBITDA for 2QFY18 was INR4410m (US$64.3m), up five per cent YoY. The company also reported that kiln productivity rose by nine per cent YoY.
Smart cost-efficiency focus
The success story of DBCL is not all about its organic and inorganic growth. It has also managed its operations well with a major focus on costs. "Through better fuel management, larger share of blended cement and higher productivity, we have cut our variable cost significantly," says Mahendra Singhi, group CEO, cement, and wholetime director, who had previously headed Shree Cement as its CEO for 19 years. He ensured that DBCL embraced petcoke as a fuel. "Fear of failure is the biggest impediment to operational excellence. We removed that," he adds. "DBCL's variable cost at INR1247/t is way lower than the industry average of INR1415 [for FY17-9 months]."
