India Cements to Invest $312 Million in Cement, Captive Power and Coal Projects by 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--India Cements Limited (BSE:530005) (Chennai, Tamil Nadu), a major cement manufacturer in southern India, has firmed up plans to invest $312 million during the next two years to set up a cement manufacturing facility and power plants in the country and to acquire a coal mine in Indonesia. The firm's board recently approved a plan to raise funds of about $104 million for these projects through the issue of equity and equity-linked instruments from the domestic and international markets.

India Cements is setting up a greenfield cement manufacturing facility with a capacity of 1.5 million tons per year in the western state of Rajasthan. The project was first announced in November 2007 as part of the firm's strategy to become a pan-India player and increase its overall production capacity to 18 million tons per year with a total investment of $300 million by 2009-10. At that time, the firm announced plans to set up two greenfield facilities, each with a capacity of 2 million tons per year in Rajasthan. The company had received a mining license for limestone in Rajasthan for a period of 30 years. The firm had also announced plans to set up a cogeneration power plant with a capacity of 40 megawatts (MW).

In November 2008, the firm announced that it had released work orders for a 1.5 million-ton-per-year cement manufacturing facility in Rajasthan and that preliminary works were under way. The facility will also be equipped with a 20-MW captive power plant. According to more recent reports, the project is scheduled for completion by March 2010. As of February 1, 2009, the company had spent $73 million of the budgeted amount of $104 million on the ongoing project. The new facility in Rajasthan will enable the firm to tap into the growing infrastructure sector in the neighboring state of Gujarat and will also increase its overall cement manufacturing capacity from the present level of nearly 14 million tons per year to more than 15 million tons per year.

India Cements also plans to invest $104 million to set up coal-based captive power plants of 100 MW in Andhra Pradesh and Tamil Nadu. Captive power plants of 50 MW each will be set up in Sankarnagar, Tamil Nadu, and Vishnupuram, Andhra Pradesh. These projects will be developed under the firm's subsidiary, Coromandel Electric Company Limited (Chennai, Tamil Nadu).

India Cements has a current power generation capacity of 50-60 MW but requires approximately 160-170 MW of power to operate. The firm operates three cement manufacturing facilities in Tamil Nadu and four in Andhra Pradesh. Production at the firm's plants in these states was hampered because of frequent power outages, leading to increased company expenditure on power and fuel. For the quarter ended March 31, 2009, the firm incurred expenses of $49 million for power and fuel, compared to expenses of $41 million incurred during the quarter ended March 31, 2008. This represented an increase of more than 18% in power and fuel expenses incurred year over year. With the commissioning of the proposed captive power plants, the firm intends to ensure a steady supply of power and drive down related costs by 15%.

India Cements is also looking to acquire a coal mine in Indonesia in order to meet its coal requirements for the manufacture of cement and power generation. The company has been in talks with concession owners in Indonesia since November 2007 to explore the possibility of entering into long-term coal supply agreements. The firm also floated a subsidiary in Indonesia, P T Coromandel Minerals Resources (Jakarta), in July 2008.

The coal mine that the firm plans to acquire is estimated to have a production potential of between 15 million and 30 million tons of coal. Technical due diligence has been completed, and the firm is currently in the process of conducting legal due diligence. India Cements hopes to finalize the acquisition by the end of September 2009. The firm requires 800,000-900,000 tons per year of coal for the manufacture of cement and about 400,000 tons per year of coal for captive power generation. India Cements currently imports 900,000 tons per year of coal and sources the balance from the domestic market.

India Cements is also likely to acquire a gypsum producer. The firm requires about 60,000 tons per year of gypsum to produce cement. Although the firm's gypsum requirement amounts to only 4% of its production capacity, the raw material costs the firm an annual expenditure of $12.5 million. With these plans to establish greater control over the supply and costs of coal, gypsum and power--the three key raw materials required to manufacture cement--India Cements is set to grow into an integrated cement producer.

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