Dear Fellow Shareholders,
I warmly welcome you to the 18th Annual General Meeting of your Company. I would like to apprise you on your Company’s performance during FY17-18 and how the year ahead will pan out.
The global economy is on a rebound. The International Monetary Fund (IMF) estimates indicating that global real GDP is accelerating from 3.8% in 2017 to 3.9% this year and the next year, the highest since the last six years is good news. The impetus was further buoyed by a revival of investment spending in advanced economies.
The present positive outlook gets a bit dimmed when one views the increased trade protectionism, rising international crude oil prices, geo-political risks and the uncertainty about tightening monetary policies in advanced economies.
India’s economy has shown considerable resilience to the transitory effects of demonetisation and implementation of Goods and Services Tax (GST). The economy posted a seven-quarter high GDP growth of 7.7% in the exit quarter of FY18 and a GDP growth of 6.7% for the full year. India’s macroeconomic indicators are encouraging. The fiscal deficit has been cut to 3.5% of GDP.
Infrastructure projects such as Bharatmala Pariyojana, airports, metros, affordable housing, smart cities will stoke the economy’s growth in the medium-term.
However, there are near-term challenges. Rising oil prices, inflation, firming bond yields and widening current account deficit are areas of concern. The ongoing global trade friction, more so between the US and China, are worrisome and can have a spillover negative effect on our country.
Against this backdrop, the Indian cement industry witnessed a pick-up in demand and after seven years’ is likely to achieve good growth. The Government’s thrust on infrastructure development remains the key growth driver. The revival of rural housing demand, and the accelerated pace of execution under the low cost housing program have supported strong volume off-take.
Still, FY 2017-18 was a year of challenges. The ban on sand mining and on the use of petcoke in major States impacted construction activity. The hike in import duty on pet coke from 2.5 percent to 10 percent and the increase in diesel prices, pushed freight cost upwards. This resulted in higher operating costs. It impacted margins.
Growth in the cement sector is estimated at around 8% in FY 2018-19. Indeed, very good, as compared to the trends of the last few years. A slew of infrastructure projects announced by the government, which will spur growth levels comprise of:
- Construction of around 84,000 kilometers of roads by 2022. - Construction of rural roads under the Pradhan Mantri Gram Sadak Yojana by 2019. - Housing for All by 2022. - The metro rail networks in several cities. - The bullet train and - Irrigation projects, to cite a few.
FY2018 has been a year of turning points for your Company. Among these the two notable ones are:
First, the acquisition of the 21.2 million tons cement capacity of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL). The acquired plants are in Himachal Pradesh, Uttar Pradesh, Uttarakhand, Madhya Pradesh, and Andhra Pradesh.
This acquisition expands the geographic footprint of your Company. It enables entry into the high growth markets of India where greater reinforcement was needed. It enables us to enhance capacity utilisation, creates synergies in manufacturing, distribution and logistics and in achieving economies of scale. Besides reducing lead-time to markets, it augments our competitiveness and benefit consumers. In turn there is value creation for all stakeholders. The transaction valued at Rs. 16,189 crore is the largest deal in India to be concluded so far, involving a major financial restructuring program.
The second turning point is the successful commissioning of a 3.5 mtpa greenfield cement capacity at Dhar, Madhya Pradesh. The Clinker plant and the 1st cement mill at Dhar were commissioned, in a record time of less than 365 days, setting a global benchmark. This plant provides a strategic advantage to your Company for catering to the growing cement demand from Madhya Pradesh’s main industrial belt, the Dewas-Ratlam-Pithampur-Indore sector. A waste heat recovery system of 13 MW capacity is under commissioning and is expected to be completed before September, 2018. After commissioning of its 4 mtpa Grinding unit at Bara, Uttar Pradesh, your Company will become the 3rd largest cement company globally (excluding China) and the largest player in India.
I would like to brief you of yet another major development. Your Company’s Board of Directors, at their meeting held on 20th May, 2018 approved a Scheme of Arrangement amongst Century Textiles and Industries Limited, your Company and their respective shareholders and creditors. It entails the demerge of Century’s ‘Cement Business’ into your Company. Century’s Cement Business comprises of 3 integrated cement units in Madhya Pradesh, Chhattisgarh and Maharashtra and a grinding unit in West Bengal. The transaction gives your Company the opportunity for strengthening its presence in the highly fragmented, competitive and fast growing Eastern and Central markets. It also extends its footprint in the Western and Southern markets. Other advantages stem from ready to use assets with a strong distribution network, availability of land, railway and other infrastructure. The acquisition is expected to lead to greater shareholder value creation. The transaction is subject to the necessary regulatory approvals. It is expected to be completed within the ensuing 6-9 months.
After the formalities of this transaction runs its course, coupled with the on-going capacity expansions, your Company’s cement capacity will stand augmented to over 111.1 mtpa, inclusive of its overseas operations.
In a separate development, your Company participated in an insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. Your management submitted a resolution plan for acquiring Binani Cement Limited. Binani Cement’s assets proposed to be acquired fall in line with your Company’s long-term strategy to expand, grow and consolidate most economically in the markets of Rajasthan and Gujarat. Hearings in the matter are pending before the National Company Law Appellate Tribunal. In the meantime, your Company has already received the approval from the Competition Commission of India (CCI).
Having provided you with a brief overview of the major developments during FY2017-18, let me now move on to dividend.
Your Directors have recommended a dividend of Rs.10.50/- per equity share of face value of Rs.10/-. This entails a cash outgo of Rs.348 crore. Of this, your Company will absorb the Corporate Tax on dividend amounting to Rs.59 crore.
I would now like to highlight your Company’s performance in the first quarter of 2018-19:
Your Company attained Net Sales of Rs. 8,476 crore as compared to Rs. 6,533 crore in the corresponding period of the previous year. Profit before Interest, Depreciation and Tax is Rs. 1,697 crore and Profit after Tax is Rs. 598 crore.
On a different yet connected platform, I am pleased to reiterate that as a Group, we are sworn to inclusive growth and to synergizing growth with responsibility.
Our constant endeavor is to enhance our environment conservation measures, continue to be profitable and sensitive towards societal well-being.
I am pleased to inform you about your Company’s association as a founding member of the Global Cement & Concrete Association (GCCA). GCCA is a new association that intends to develop the cement sector’s role in sustainable construction. GCCA aims to build innovation throughout the construction value chain, in collaboration with both industry associations, architects and engineers. The GCCA, led by international cement companies is headquartered in London. It complements and supports the work done by existing associations at national and regional level. The other GCCA founding members are Cemex, CNBM, CRH, Dangote, Eurocement, HeidelbergCement, LafargeHolcim, Taiheiyo and Votorantim.
Your Company has been consistently adopting new technologies that are cleaner and greener. Our plants and processes are constantly driven to become more energy efficient, given our quest to become better stewards of natural resources. With its thrust on the use of alternative fuels, your Company has been relentlessly striving to reduce consumption of fossil fuels by substituting these with wastes from other industries. These efforts have resulted in around 3% of your Company’s fuel requirements being met through use of alternative fuels. Your Company is in the process of installing around 62 MW Waste Heat Recovery Systems (WHRS) over the next two years. It will increase its WHRS capacity to 121 MW. This will result in over 15% of its power requirement being met through WHRS. Your Company also continues to increase the use of renewable energy as part of its energy mix. It is currently exploring further opportunities for purchase of green power as well as investments in solar and wind generation.
It gives me great pleasure to inform you that your Company is now certified as 2.18 times water-positive by DNV–GL, a global quality assurance and risk management company. The assessment includes all of your Company’s integrated units, grinding units and bulk terminals in India, basis the data for the fiscal year 2016-17. This is an important milestone in your Company’s commitment to drive sustainability across the business life-cycle. The business continues to reduce the usage of water in its operations. It fosters responsible water management in partnership with various government bodies and other local stakeholders. All of your Company’s units are zero water discharge plants.
Your Company has set a target to reduce its CO2 intensity by 25% by FY2021, as compared to FY 2005-06. During the year, your Company cut its CO2 intensity by 17% compared to 2005-06. In energy efficiency, your Company has overachieved the target set by the Government of India for the first Perform, Achieve and Trade (PAT) cycle. We are on track to achieve the next phase of PAT cycle targets.
In a separate development, the National Accreditation Board for Testing and Calibration Laboratories (A constituent Board of Quality Council of India) has granted accreditation to your Company’s Research & Development laboratories based in Taloja, Maharashtra. This achievement raises customer confidence, respect for your Company’s ‘Brand’ as well as recognition of its international technical capabilities and standards. Your Company will now incorporate the internationally recognised NABL logo / stamp on all its R&D test reports. You will be happy to learn that during FY18 your Company’s R&D team filed four patents relating 5 to grey cement; low-temperature, low CO2 emission and very rapid hardening clinker and cement. The patent application for rapid hardening 3D printable mortars and concrete is awaiting approval.
Let me now share with you, your Company’s endeavors towards inclusive growth and synergizing growth in a sustainable manner. Your Company works intensively in 480 villages spanning 15 States, reaching out to 1.5 million people in proximity to its manufacturing plants. Its activities are implemented under the aegis of the Aditya Birla Centre for Community Initiatives and Rural Development, led by Mrs. Rajashree Birla, your Director. Your Company is a caring corporate citizen. The major areas of focus are education, healthcare, sustainable livelihood, infrastructure development and social empowerment and welfare.
For the year 2017-18, your Company’s CSR spend was Rs.60.71 crore. This is over 2.5% of the net profit. Your Company’s efforts towards Corporate Social Responsibility and environment conservation have been more elaborated in the Annual Report. I hope, you have read them with interest.
Before moving on with the agenda for the day, let me add that your Company has a strong Balance Sheet, robust cash flows and gearing levels well within reasonable limits. These I believe, sets your Company up for success. Your Company’s market cap stands at around 16 billion dollars – a mark of stakeholder confidence.
On behalf of your Company’s Board, I convey our gratitude to all the banks, financial institutions, stakeholders, business associates and the Central and State Governments for their co-operation and support. I would like to acknowledge our people. Their dedication to work, their sense of belongingness, their pride and their putting the Company first has been a major contributant to our success.
Let me express our deepest gratitude to each of you, our shareholders. I look forward to your ongoing support.
Having provided a snapshot of your Company, I now come to the first resolution relating to the adoption of financial statements for the year ended 31st March, 2018 and the Reports of the Directors’ and Auditors’ for your consideration and approval.