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Divestment of limestone bearing land in Central India Growth outlook uncertain

India Cements (ICEM) has agreed to divest its entire shareholding in Springway Mining Pvt Ltd (SMPL) for a consideration of INR4.77b to JSW Cement (as per press release). However, as per our discussion with the management, ICEM will also receive a total of INR1.27b towards the advance paid (INR1.18b) to SMPL and interest on such advances (INR90m), taking the total consideration to INR6.04b. ICEM has received INR3.74b upfront and the remaining amount will be received on or before 31st Dec’22

ICEM, in Oct’18, entered into a share purchase agreement to acquire the entire shareholding of SMPL in a phased manner for a total consideration of INR1.83b (investment of INR3.1b, including advances & interest on advances). The acquisition was completed recently in Jun’22.

The management in 4QFY22 earnings concall highlighted its intent to monetize some assets, mainly land in order to improve liquidity. It mentioned that the company is not envisaging any expansion plans (except energy-efficiency mill at Sankarnagar works and a WHRS at Chilamkur works), given the low capacity utilization and any such action will be taken up based on improved market conditions. Hence, the future growth plans of the company looks uncertain.

ICEM has not added any capacity after the up-gradation of its Chilamkur unit in Jun’10 which resulted in a significant market share loss for the company 800bp+ over FY10-22.

Potential to add 4mtpa capacity; consolidation is high in Central India

M&A activity in the sector has led to increased consolidation in Central India. Currently, ~76% (FY23E) of capacity share in the region is held by the top five players.

Central India has witnessed new entrants (SGC, JKCE, JKLC, etc.) over the recent past. Larger players are also keen to strengthen their presence in the region through organic or inorganic routes.

This deal has open avenues for JSW Cement (a new entrant) to install capacity in Central India. SMPL has been granted ToR for a clinker/Cement capacity of 2.5mtpa/4mtpa along with a CPP/WHRS capacity of 40MW/10MW. Based on a 4mtpa cement capacity, the limestone reserves are available for ~30 years.

Over FY22-25E, we are expecting clinker capacity (excluding any expansion by JSW after acquisition of SMPL) to exhibit a CAGR of 9% as against cement demand CAGR of 8% over the same period. We don’t expect disruption in demand-supply dynamics in the region as the concentration of the top five players will remain high at ~72%.

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