Jaiprakash Associates, UltraTech may finalise Rs.16,189-cr deal
Jaiprakash Associates, UltraTech may finalise Rs.16,189-cr deal

Jaiprakash Associates, UltraTech may finalise Rs.16,189-cr deal

According to news reports, UltraTech Cement's Rs 16,189 crore acquisition of the cement business of Jaiprakash Associates may be 'completed soon', according a top executive in the know of the situation.

'The Jaiprakash Associates acquisition is on track and should get done sooner than later,' said Aditya Birla Group Chief Financial Officer Sushil Agarwal. The acquisition of Jaiprakash Associates' cement assets will boost UltraTech Cement's production capacity by a third to 90.7 mtpa.

After completion of the deal, the purchase will help UltraTech gain access to the markets of Madhya Pradesh, Uttar Pradesh (East), Himachal Pradesh and coastal Andhra Pradesh. As of now, the cement major does not have a presence in these markets.

In July 2016, UltraTech had said that it would acquire Jaiprakash Associates' cement plants, with a total capacity of 21.2 million tonnes per annum, in one of the largest deals in the Indian cement sector.

In a regulatory filing in July 2016, UltraTech said that the acquisition was expected to be completed in the 'next 9-10 months after getting all regulatory and shareholders' approvals'.

UltraTech Cement reported 11.3 per cent drop in its fiscal fourth-quarter profit at Rs 726 crore against Rs 819 crore in the year earlier. Revenues rose 3 per cent to Rs 7,020 crore in the three months ended 31 March from Rs 6,819 crore in the year-ago period.

The cement sector in India has witnessed several large deals in the past year, pointing towards consolidation in this domain. In July, Nirma Ltd announced the acquisition of Lafarge India's cement assets for $1.4 billion. In August, Reliance Infrastructure Ltd sold its cement business to Birla Corp for Rs 4,800 crore.

Cement consumption to rise 3-4.5% in FY18: CARE Rating
The government's thrust on infrastructure and road sector spending is likely to be the key driver of cement demand in fiscal year 2018 (FY18), said a report by CARE Ratings. Thus, cement consumption would witness a growth of 3-4.5 per cent during the year, which translates to 285-290 million tonnes of total consumption during the fiscal year.

However, the rating agency added that while the government's 'Housing for all' initiative, especially in rural areas, would partially compensate for otherwise sluggish activity in the real estate sector, overall demand from the housing segment for cement may see some decline during the year. The housing sector alone constitutes two-thirds of the total consumption of the building material at present. Also, it should be noted that capacity utilisation is low with excess capacity already in place across regions in India and rising input costs may put pressure on the producers' margins. The rating agency expects cement makers to undertake price hikes over the course of the year and pass on the burden of rising costs to customers.

L&T seeks deadline extension for Hyderabad Metro rail
The construction major Larsen and Toubro, which has been executing the Rs 14,132-crore Hyderabad metro rail project, has sought extension of the deadline. The matter is under the active consideration of the Telangana government. The five-year deadline for completion of the 72 km project across three corridors ends on July 31. 'The State government will decide on the extension of deadline as per the terms of the concession agreement,' NVS Reddy, Managing Director of Hyderabad Metro Rail Limited (HMRL), said.

Project update
Providing the project update and detailing some of the innovative measures taken by the developer and the state, Reddy said electric vehicles for the last-mile commute and use of bicycles will be encouraged in a big way.

He said the project crossed a number of hurdles and more than 3,000 properties were acquired to provide right of way. Two of the three corridors will be ready by the end of the year.

Of the 72-km long elevated metro stretch across three corridors, 66 km across three stretches is expected to be completed by next year. The remaining 6-km stretch in the Old City segment is likely to take time as it is struck on alignment issues.

Speaking at Metro Bhavan, Reddy said: 'Thus far, more than Rs 14,000 crore has been invested on the project. While L&T invested more than Rs 12,000 crore, the government has pitched in with investments of over Rs 2,100 crore for support infrastructure, land and other amenities.'

Describing the public-private partnership (PPP) metro rail as urban rejuvenation project, he said the stage is now set for rapid development. Even the critical work on road over-bridges will be completed in a couple of months.

Two completed segments of the metro project are ready for commissioning after trial runs and securing necessary clearances. The state government has to take a final call on the project's commissioning, he said.

While the project will have 64 metro stations, 32 stations will have buildings or parking spaces. Of them, 17 will be developed by L&T and the rest by HMRL.

Electric Vehicles
'Like any other metro project, we will encourage people to step out of the house and use public transport. This will discourage the use of personal vehicles to commute to the station. The last-mile connectivity will be provided with electric vehicles and people will be encouraged to use bicycles,' he said.

'We are planning to set up 400 bike stations and offer 10,000 bicycles for people to use in the last mile. With the state planning a Single Transport Authority, we are keen to encourage EVs for last mile transport,' he said.

Meanwhile, discussions are on for extension of metro rail network up to the Hyderabad airport and other sections.

'The metro will have multimodal connectivity to integrate all metro rail stations with existing rail terminals, MMTS (multimodal transport system), bus depots and merry-go-round feeder buses between rail stations and colonies on the same ticket,' he said.

GST regime: Higher rates for cement may hit construction
Cement prices are expected to go up marginally, as the GST Council has announced a tax rate of 28 per cent on the product.

The cement industry says the rate is above what was expected, and the increase will most likely be passed on to consumers.

'The industry would try to make use of this to pass on some cost,' Sushil Agarwal, Whole Time Director and CFO, Grasim Industries, told the media. 'If you look at cement, you can pass on only what customers can afford. Ultimately, customer affordability counts. That's the last leg of the transition. I think it will evolve, but we can't give a guidance today. GST itself as a subject will take time for things to settle.' Analysts believe that while it is a welcome move that some of the input materials have been categorised under 5 per cent duty structure, the increased tax rate on the final product may have a slightly negative impact on the industry.

'While a lot of infra and development projects are on-going and many are in the pipeline at the national level, categorisation of cement in the lower bracket would have helped to offer cost effe¡ctive construction rate for such upcoming projects.

'However, the GST Council has maintained a lower rate of 5 per cent on key inputs like limestone, sand, gypsum and iron ore, which could support cement manufacturers to maintain procurement cost, which may be favourable by virtue of anti-profiteering clause,' said Biren Vyas, Partner, Grant Thornton India.

On the brighter side, lower tax on transport sector could benefit cement companies with lower freight costs, going forward.

'GST rate of 28 per cent for the sector is neutral as the rate differential of 1-2 per cent would be passed on to the end consumer, which should not impact profitability. However, the slab rate is higher than the expected slab rate of 18 per cent, in which case there was expectation that there could be been some margin expansion,' Motilal Oswal Securities said in a note. 'The bigger impact of GST for the sector would be in the form of lower freight cost due to efficient movement of fleet and ease of cross border movement of goods.'

price hikes in April indicate better volume and profitability
Cement price hikes in April indicate impending volume growth and possibly better profitability for cement makers in the current quarter, analysts and company executives said.

Average cement prices nationwide picked up strongly in April, a 28 April report by Edelweiss Securities Ltd said. 'Average all India prices rose 6.7 per cent month-on-month led by Western and Southern markets where price jumped in double digits, followed by Eastern (up 6 per cent month-on-month) and other regions,' the report said.

An Edelweiss survey showed cement offtake was robust in the East, stable in the North, and marginally weak in Uttar Pradesh due to sand shortage. Cement demand will rise 5-6 per cent as the government awards more road projects, said KK Maheshwari, managing director of UltraTech Cement Ltd, India's largest cement maker.

For the first time since 2001, cement production declined year on year in FY2017, following the government's demonetisation exercise. Prices fell as well. Prices have now rebounded to pre-demonetisation levels in April after being negatively impacted in the West, East and South regions, rating agency ICRA Ratings said.

'With the impact of demonetisation gradually subsiding, cement prices have reached the pre-demonetization levels in April 2017 in most markets,' said Sabyasachi Majumdar, senior vice-president and group head at ICRA Ratings. 'Going forward, we expect prices to be supported by a marginal improvement in capacity utilisation. The slowdown in new capacity addition and improvement in the supply-demand scenario in FY18 should support capacity utilisation levels and thereby cement prices.'

The cement sector is seeing early signs of increase in demand after a short-lived decline and prices of the commodity are likely to rise, Mint had reported on 23 March. Despite assuming flat volume growth for the sector, first quarter earnings are likely to surprise positively driven by price hikes, PhillipCapital India said in a 27 April report. 'Given a favourable demand scenario, we understand cement prices have been raised across pockets by about 10 per cent and further price hikes of 3-5 per cent cannot be ruled out in May 2017. After the monsoon arrives, cement prices are unlikely to be increased until the end of H1FY18,' the report said. Even if prices were to drop, they would still be 5-6 per cent above March prices, it said.

With the current cement prices, first quarter (April-June) sector EBITDA (earnings before interest, taxes, depreciation and amortization) per tonne is likely to improve by 20-40 per cent quarter-on-quarter and by 15-20 per cent y-o-y, Phillip Capital said.

Most dealers are hopeful that demand will pick up and eventually drive up prices further prior to monsoon, according to the Edelweiss report. Overall, higher cement prices year-on-year at the outset of FY18 suggest positive price/volume trade-off and better profitability for players in upcoming interims, it said.

NITI Aayog offers tips to boost UP economy
Uttar Pradesh is fast emerging as a bellwether for Centre-State cooperation. After turbulent relations with the previous state government, the Centre seems to be leaving no stone unturned to bring the State in line with the Narendra Modi government's vision.

Moving ahead with the same, 18 officials from the Union government's policy ideation arm, NITI Aayog met with the UP government representatives in Lucknow.

Doubling farmers' income
An official statement said that the NITI team dwelled at length on how to improve the situation in Uttar Pradesh, including doubling the farmers' income, livelihood opportunities, crating enterprise and promote growth and investment in the state. Member Agriculture at the Niti Aayog, Ramesh Chand, suggested possible solutions for doubling farmers' income in the State. He said that given the different agro-climatic zones in the state, different strategies have to be adopted for maxi¡mising the farm yields. He cited specific indicator wise progress in the Bundelkhand package.

Global investor meet
The government statement said that the State government and the Department of Industrial Policy and Promotion (DIPP) resolved to host a global investor summit. Detailed discussions were held on social sector such as rural development, health, education, ICDS and provision of drinking water and sanitation measures in the state, it added.

A Joint Working Group made up of three representatives each from NITI Aayog and the state government was set up after the discussions to carry forward the discussions and ensure their implementation.

Housing boom set to be next growth driver
India's unhoused may soon become a potent economic growth driver, thanks to Prime Minister Narendra Modi's drive to bring homes to the country's 1.3 billion people, rising incomes and the best affordability in two decades.

The result may be a $1.3 trillion wave of investment in housing over the next seven years, according to CLSA India Pvt Ltd.
The firm expects 60 million new homes to be built between 2018 and 2024, creating around 2 million jobs annually and giving a tailwind of as much as 75 basis points (0.75 percentage points) to India's gross domestic product. The volume of social and affordable housing will rise almost 70 per cent to 10.5 million annually by 2024, exceeding the 33 per cent increase in the premium market.

'The housing sector is at a tipping point and will be the economy's next big growth driver,' Mumbai-based analyst Mahesh Nandurkar and his colleagues wrote in a note last week. 'The catalyst is the government's big push for an ambitious housing programme.'

PM Modi has been on a mission to expand affordable housing. In February, the government granted affordable-housing builders 'infrastructure status', making them eligible for state incentives, subsidies, tax benefits and institutional funding. In June 2015, it announced a 'Housing for All' programme which aims to construct 20 million homes across the country and in December it announced rebates and interest waivers for home loans under the programme.

Affordability
In the past five years, mortgage rates have dropped about 2.75 percentage points to about 8.5 per cent. Prices have remained stable while per-capita incomes have posted a compounded annual growth rate of about 10 per cent, according to the CLSA note.

While India's real estate industry extended a slump after PM Modi's sudden decision to ban 86 per cent of the nation's cash in November, affordable housing was growing the fastest before demonetisation and the whole market has shown signs of bouncing back.

Home sales, which slumped in the wake of the cash ban, have since shown signs of a recovery, according to real estate advisory firm PropTiger.com. Sales across nine cities rose 19 per cent in the March quarter, rebounding from a 20 per cent slump in the previous three months.

High growth
CLSA expects volume growth in new home construction to jump to a compounded annual growth rate of about 8 per cent over the next seven years from zero over the past five years.

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