Bangalore: Apart of the Sakshi group, Bharathi Cement Corp. Ltd has commissioned the first phase of its 5 million tonne (mt) cement plant in Kadapa district of Andhra Pradesh, making the company the newest entrant into an expanding cement market and adding to concerns of a glut as manufacturers step up production of the building material.
Sakshi group, with interests also in media and power, is controlled by Y.S. Jagan Mohan Reddy, the member of Parliament from Kadapa and son of former Andhra Pradesh chief minister Y.S. Rajasekhara Reddy, who died in a helicopter crash on 3 September.
A 2.5 mt, Rs700 crore manufacturing unit has been commissioned in the first phase, according to Harish C. Kamarthy, executive director of Bharathi Cement.
Growing interests: Y.S. Jagan Mohan Reddy controls Bharathi Cement and is an MP from Kadapa, where the cement plant is being built. Bharath Sai / Mint
“Work on the second phase of the plant is going on and will be commissioned in the last quarter of FY 2010. The total investment for the 5 million tonne capacity is Rs1,420 crore,” Kamarthy said.
Apart from majority owner Sakshi, Bharathi Cement has been co-promoted by India Cements Ltd, Dalmia Cement (Bharat) Ltd and N. Prasad, vice-chairman and founder of Matrix Laboratories Ltd.
With this plant, Bharathi Cement is entering a 230 mt cement market that is dominated by the likes of Lafarge SA, the world’s biggest cement maker, through ACC Ltd, global No. 2 Holcim Ltd through its Indian unit Ambuja Cements Ltd and Aditya Birla Group’s UltraTech Cement Ltd.
Cement makers are expected to benefit as India reinforces its deficient public works and housing demand rises, but there are also concerns that rapid expansion of cement manufacturing capacity could lead to a glut and depress prices.
Dispatches and production both increased by around 17% in August from a year earlier, CD Equisearch Pvt. Ltd said in a recent report about the cement industry’s outlook.
“Domestic cement industry is in the middle of a massive expansionary cycle, with 110 million tonnes of additional capacity coming onstream in the next three years...” the report cautioned, adding that this would “result in temporary supply overhang, leading to downward pressure on prices”.
Sakshi group, which runs a 23-edition Telugu daily in Andhra Pradesh and a television channel under the Sakshi name, also operates a 37.5MW hydropower unit in Karnataka. The group bought Raghuram Cements in 2007 and renamed it Bharathi Cement.
India Cements and Dalmia Cements are “just financial investors and have helped and advised us on a couple of technical issues in setting up the plant”, Kamarthy said.
Sakshi owns 69% of the company and the remaining 31% is distributed among the other promoters, although Kamarthy did not provide a break-up. India Cements managing director N. Srinivasan could not be reached for comment.
Matrix founder Prasad said: “As part of the investment strategy, we have identified certain growth sectors. Cement is one such sector which we believe has got good growth potential with the strong impetus on infrastructure development in India.”
Still, some analysts are concerned about margins that Bharathi Cement would earn in a cement-surplus state such as Andhra Pradesh.
“Cement is a local play and the cement prices in Andhra Pradesh are already ruling some 10-15% below the other markets because of surplus production,” said Dalpat B. Mehta, chief executive of Mumbai-based financial consultancy firm Sun City Advisers.
“Additional capacities in the AP market will not only put pressure on the margins of Bharathi Cement but also on the other players as well.”
Kamarthy said Bharathi Cement will be positioned at the top end of the market. “We have a state-of-the-art plant. The cement mill in the plant is the largest in the world with a capacity of 360 tonnes per hour,” he said.
The company is targeting revenue of Rs332 crore in the remaining six months of the current fiscal, Rs900 crore for FY11 and Rs1,637 crore in FY12.
BCCL has already appointed around 600 distributors and initially will have a presence in Andhra Pradesh, Tamil Nadu, Karnataka, Kerala, Goa and Maharashtra.
“In the first three states we have already established a strong network of distributors and in the other three states we will be strengthening our network in the next few months,” said M. Ravinder Reddy, director of marketing at Bharathi.
Bharathi’s project had run into controversy, with the opposition Telugu Desam Party alleging that the company had been allotted government land at a subsidized price—an allegation that the company refutes.
“We picked up the land through an auction and actually paid prices which were higher than what was prevalent in the market,” said Ravinder Reddy.
The Nallalingyapalli-Kamalapuram belt in Kadapa district of Andhra Pradesh has a number of cement units, including those of UltraTech Cement, India Cements and Dalmia Cement, because of the rich limestone quarries in the region. Limestone is one of the key raw materials to manufacture cement.
Bharathi Cement is already scouting for land for a second 5 mt plant to be set up in either Guntur in Andhra Pradesh or Gulbarga in north Karnataka.
The company has a debt-equity ratio of 75:25. Debt was arranged through a six-bank consortium led by Oriental Bank of Commerce, Kamarthy said.
“We intend to do that once the second phase is complete in the current plant. Our aim is to achieve scale of at least 5% of the Indian market and only then will we look at tapping the public market for funds,” added Kamarthy.
C.R. Sukumar in Hyderabad contributed to this story.