Tata Steel Apr-Jun crude steel sales decline 2% YoY on exports fall

5 Jul 2022

Tata Steel Ltd’s crude steel sales from its domestic plants declined 2.2% on year to 4.06 mln tn in Apr-Jun, the company said in a quarterly update today. Compared to the previous quarter the sales were down by 21%.

The company said this was “due to moderation in exports following the imposition of 15% export duty.”

The steel major increased its crude steel production from domestic plants by 6.3% on year to 4.92 mln tn. Sequentially, it was marginally higher by 0.4%.

From its operations in Europe, Tata Steel’s crude steel sales fell 7.3% on year, and 10% on quarter, to 2.16 mln tn during the June quarter. The production in this region fell 9% on year to 2.43 mln tn.

Tata Steel’s Thailand plants also saw sales fall 11% on year and 8.8% on quarter to 0.31 mln tn. The production figures for these plants were the exact same as sales.

The company said that its automotive and special products segment deliveries increased by 22% on year in Apr-Jun, while those for its industrial products and projects segment increased by 8% on year.

UltraTech disputes JP Associates claim on 10-bln-rupee preference shares

4 Jul 2022

UltraTech Cement Ltd today disputed the claim made by Jaiprakash Associates Ltd that it had defaulted on redemption of preference shares issued to Jaiprakash Associates.

The redemption was due on Friday as per terms of the issue, Jaiprakash Associates said in its filing on Saturday.

UltraTech had made different issues of preference shares and non-convertible debentures of around 46.3 bln rupees in 2017-18 as part of its 161.9-bln-rupee deal with Jaiprakash Associates and Jaypee Cement Corporation to acquire their cement plants, spread across five states, having total annual capacity of 21.2 mln tn.

Of these issues, many had been redeemed in that year itself.

The preference share issue that was due to be redeemed on Saturday was for 10 bln rupees.

UltraTech said in its filing that it “had offered” redemption of the preference shares after “adjustment of costs to be borne by” Jaiprakash Associates, “in compliance with the transaction arrangements.”

UltraTech said that it was expecting Jaiprakash Associates “to honour its obligations and execute necessary documentation for the redemption.”

The company did not specify the quantum of costs that had to be paid by Jaiprakash Associates.

Grasim gets partial relief in tax dispute case on demerger of fin biz

1 Jul 2022

Grasim Industries Ltd has got partial relief from the Income Tax Dispute Resolution Panel in a capital gains case pertaining to shares issued to its shareholders when it had demerged its financial services business in 2017-18 (Apr-Mar).

The company said in a stock exchange filing today that an order passed by the tax dispute resolution body on Thursday “rejecting various objections of the Company and in partial relief allowed objection in the matter of Capital Gain Tax on the value of shares issued to the shareholders of the Company on demerger of Financial Services Business.”

On Sep 30 the Income Tax Department had issued an order adding capital gains tax claim on Grasim to its earlier claims in the demerger case. The company had, on Oct 1, said that the additional tax demand was estimated to be 83.3 bln rupees.

The company subsequently appealed against this order to the Dispute Resolution Panel which gave its ruling on Thursday. The Income Tax Department will have to quantify Grasim’s tax liability for 2017-18 based on the Panel’s ruling, Grasim said in its filing.

In 2017-18, Grasim’s consolidated profit before tax was 56.3 bln rupees and total tax expenses amounted to 19.5 bln rupees, data from Informist Corporate Fundamental Database showed.

SEBI fines Ajay Shah, 7 others 110 mln rupees in NSE governance case

30 Jun 2022

The Securities and Exchange Board of India today fined eight entities 110 mln rupees in a case that alleged misgovernance at the National Stock Exchange of India with regard to exclusive use of confidential and sensitive data for the period from 2009 to 2016.

Ajay Shah, an academician who was closely associated with NSE since 1994, was levied a penalty of 30 mln rupees, while Infotech Financial Services was fined 20 mln rupees and Suprabhat Lala, Sunita Thomas and Krishna Dagli were fined 10 mln rupees each.

SEBI also levied a penalty of 10 mln rupees each on the NSE and two former managing directors, Chitra Ramakrishna and Ravi Narain.

In its order, SEBI held that its investigations had provided a clear picture of irrefutable preponderance of probability of a nexus amongst Shah, Infotech, Thomas, and Dagli to use NSE’s liquidity index project as a conduit to achieve their commercial goals.

SEBI held that Shah had exerted his influence over NSE to get the contract for computing of liquidity index awarded to Infotech in which Thomas and Dagli were directors.

SEBI fined Lala on the ground that he was a senior official in NSE during the period in question, was the spouse of Thomas and was found to have had a close nexus with Infotech, Thomas and Shah in the entire scheme.

The NSE and its former heads Ramakrishna and Narain were held by SEBI to have committed “glaring negligence and irregularities as well as procedural lapses” while executing data use agreements with Shah.

SEBI said that they had “failed to ensure proper due diligence with respect to execution of agreements and to ensure fair dealing while executing these agreements and thereby have compromised on the integrity of the securities market.”  End

FOCUS: New capex plans by cement companies raise supply glut concerns

30 Jun 2022

The capacity expansion plans announced recently by major cement companies such as UltraTech Cement Ltd and Shree Cement Ltd, have tempered expectations of high earnings growth. This is because the capacity additions will lead to a supply glut over the next five years which will not be commensurate with demand growth.

There is also a view that speculation over whether Adani Group will aim to double the joint capacities of ACC Ltd and Ambuja Cements Ltd after legally completing its acquisition of the two companies has spurred existing major cement players to announce new capacity expansion plans.

The fact that these could be preemptive in nature is also indicated by the fact that much of the announced capex additions will get implemented after 2022-23 (Apr-Mar) is over and up to end of 2024-25 or even beyond.

UltraTech set the ball rolling early this month by announcing a 22.6-ml-tn annual capacity expansion till end of 2024-25, taking its total cement capacity to around 160 mln tn by end of 2025-25.

But the company hinted in an investor conference in mid-June that much of the new planned capacity additions, will take place after 2023-24 and not before it.

The company had earlier announced a capacity expansion of 20-mln-tn over 2021-22 and 2022-23 which is currently underway and which will likely expand its total capacity to 137 mln tn at the end of 2022-23.

According to brokerage Emkay Global, UltraTech is looking to add 16 mln tn of annual cement capacity in 2022-23, and expects delays in the commissioning of new capacities announced this month.

Unlike most other players in the cement industry, UltraTech does not shy away from using the greenfield route in any new phase of expansion and that will take time to commission.

In terms of cement capacity, UltraTech accounts for a little over one-fifth of the industry.

Following UltraTech’s footsteps, Shree Cement also announced a 3-mln-tn annual cement capacity expansion which will raise its total capacity to 49.4 mln tn by the end of December 2024. The company’s managing director, HM Bangur, told Business Today recently that the company will increase total capacity to 80 mln tn in five years from now.

According to estimates made by Jefferies India in May, the aggregate annual cement capacity in the industry will rise to 620 mln tn by the end of 2023-24 from the current level of around 560 mln tn.

After the new capacity hike plans announced by UltraTech and Shree Cement this month, the cement industry’s total capacity will likely rise further to 650 mln by the end of 2024-25.

“In the past, cement manufacturers have added capacities despite lower utilization rates and fall in return ratios,” Jefferies India said in a recent report. It attributed the rush to expand cement capacity by companies to multiple factors like fancy for dominant market share and time-to-time improvement in free cash flow with limited opportunities to invest elsewhere.

Further, state incentives for setting up manufacturing units goad cement companies to deploy incremental capex without considering the unit economics of the plant or region, the brokerage said.

The market has already factored in the capacity expansions that are already in play since the last one or two years. But it is worried about the supply glut that will take place from 2024-25 onwards assuming that UltraTech and Shree Cement would start executing their latest capacity expansion plans in a big way from that year.

The new capex plans took analysts by surprise. In a recent report, brokerage Nirmal Bang Equities listed “aggressive capacity expansion plans by multiple players” as the most significant headwind “which will inhibit earnings growth” of companies in the cement sector.

The brokerage said the new capacity addition by Ultratech was “aimed at pre-empting the capex that Adani may announce after completing the ACC and Ambuja acquisition process to establish a strong foothold” in the cement industry.

Some analysts say the impact of recent announcements will depend upon the type of expansion. According to Sumit Agrawal, equity fund manager at IDFC Mutual Fund, a brownfield capacity generally takes 2-3 years to come up post announcement and a greenfield takes 4-6 years.

Capacity expansion through the greenfield route involve setting up of new plants are set up or expanding existing ones, whereas brownfield capacity is through acquisitions of existing facilities of another company.

“FY23 (2022-23) supply may not be impacted at all by the new announcements. FY24 capacity will also have very little impact from new announcements. It is very difficult for any of the newly announced capacity to come up before FY 25,” said Agrawal.

WHERE IS DEMAND?
There was a strong revival in cement demand after the lockdowns were eased in 2020 which caught the street and the cement companies themselves off guard. Jefferies India said this an initial phase of pent-up demand from incomplete projects and houses which saw rural demand suddenly shoot up. Demand from cities followed significantly.

But recent inflationary pressures on consumers have muddied the waters for the cement companies. In post-March quarter conference calls with analysts in May, some cement companies have confirmed sluggishness in demand in the current quarter (Apr-Jun).

Inflation impact on government expenditure and current rural weakness may also belie market “anticipation of a surge in construction demand in the run-up to the general election (in 2024),” Jefferies India said. The brokerage pointed to the fact the recent slag in demand was partly on account of “a lack of infrastructure construction push due to government’s inaction”.

Further, input cost pressures have stayed high in the last three quarters and prevented companies from stroking demand through lower cement prices. Analysts are, however, more worried that the sustained rise in coal and other input costs will rein in companies from hiking cement prices and thereby hit the operating margins.

The cement sector is “passing through bumpy roads”, ICICI direct said in its report recently. A key factor, according to the brokerage, “will be the glut of new supplies over next three to four years.”

This view seems to be the market consensus. Time will tell, and particularly Adani Group’s action after completing acquisition of ACC and Ambuja Cements, whether the sector will manage to ride its way on the bumpy roads.

SEBI fines NSE, former MD, 16 others 438 mln rupee in dark fibre case

29 Jun 2022

The Securities and Exchange Board of India, on Tuesday, imposed penalties aggregating to 438 mln rupees on 18 entities including National Stock Exchange of India and its former Managing Director and Chief Executive Officer, Chitra Ramakrishna, in the dark fibre and leased line connectivity case.

The case involved alleged preferential treatment given to Way2Wealth Broker and GKN Securities by NSE and its officials by allowing them to utilise the services of unlicensed technology vendor Sampark Infotainment to lay optical fibres to colocation data centres of NSE and BSE.

Colocation refers to the practice of renting space at data centers for placing one’s own equipment such as servers, usually for quicker network connectivity.

The arrangement was found to have breached the exchange’s norms requiring equal, unrestricted, transparent and fair access to all brokers.

SEBI held NSE accountable for not disseminating to all members changes in empaneled service providers for providing point-to-point connectivity at NSE’s colocation facility. Point-to-point connectivity, in this context, refers to the link between a stock broker's server at NSE colocation and that stock broker’s server at BSE colocation. The exchange was also held responsible for the consequent preferential treatment given to the two brokers.

Former NSE officials Ramakrishna and Subramanian were held accountable for failing to prevent the breaches from happening given the fact that they had total control over the affairs of the exchange.

SEBI imposed a fine of 70 mln rupees on the exchange and 50 mln rupees each on Ramakrishna, former Chief Operating Officer Anand Subramanian, and Ravi Varanasi, who was in charge of the colocation business.

Way2Wealth Brokers was fined 60 mln rupees while GKN Securities received a penalty levy of 50 mln rupees. The technology vendor, Sampark Infotainment, was fined 30 mln rupees.

Further, three partners in GKN Securities — Om Prakash Gupta, Rahul Gupta and Sonali Gupta — have been handed out penalties of 11 mln rupees each.

The violations took place during the period of 2014 to 2016.

Tata Steel 10-mln-tn capacity add to be domestic, says Chandrasekaran

28 Jun 2022

Tata Steel Ltd’s targeted expansion of annual steel capacity by 10 mln tn will take place over a long period and it will all be within the country, its chairman, N Chandrasekaran, told shareholders in the company’s annual general meeting today.

The expansion will raise the domestic annual steel capacity to around 30 mln tn from 20 mln tn, he said.

The company was currently focused on increasing annual capacity in Kalinganagar to 8 mln tn from 3 mln tn, according to its annual report for 2021-22 (Apr-Mar).

Its capital expenditure in last financial year was 62.9 bln rupees primarily on account of the expansion project in Kalinganagar.

Tata Steel had recently acquired Neelachal Ispat Nigam whose site was in proximity to the company’s Kalinganagar site. Chandrasekaran told shareholders that the company “will endeavour to ramp up the operations of NINL (Neelachal Ispat Nigam) to its rated capacity of 1.1 million ton per annum within the next 1 year, subject to obtaining statutory clearances.”

There were no plans to increase steel capacity in its facilities in Europe and UK, he said.

In October last year, Tata Steel had spun off its UK and Netherlands operations into two independent subsidiaries “pursuing separate strategic paths”, according to its annual report.

Addressing shareholder queries on how soon the company intends to have zero net debt, Chandrasekaran said the company’s intent was not to take the net debt levels to zero as that would make its capital allocation inefficient.

He said Tata Steel was comfortable with the current capital allocation policy goal of bringing down debt by $1 bln (nearly 79 bln rupees) every year. At the end of 2021-22, the company’s consolidated net debt was 510.5 bln rupees, down from 753.9 bln rupees a year ago.

Responding to shareholder questions on the trend in price of steel in Apr-Jun quarter, so far, for the company, Chandrasekaran said there was a downward correction of 15%.

Lower steel prices will translate into reduced revenues for Tata Steel.

“But there is also a correction in coking coal price to the extent of 30-35%,” he said. Coking coal makes up for 40% of Tata Steel’s production costs and the company imports 80% of its coal requirement.

The fall in coal prices will cancel out the impact of fall in steel price on the operating margin, according to Chandrasekaran.

In response to a shareholder’s query on speculation that Tata Steel has been importing coal from Russia, Chandrasekaran said that it was not the case and that the company was importing coal only from Australia “at this point in time”.

Moody’s cautiously upgrades Tata Steel’s rating outlook to positive

27 Jun 2022

Moody’s Investors Service today said that it had changed the rating outlook on Tata Steel Ltd to positive from stable. The rating agency also retained Tata Steel’s Ba1 corporate family rating.

The rating outlook upgrade by a notch by Moody’s was based on its assumption that Tata Steel’s debt to earnings before interest, tax, depreciation, and amortisation ratio would remain below 1.5 times over the next two years while the company consistently generates positive free cash flow.

Moody’s was impressed by Tata Steel’s capital allocation policy that prioritised debt reduction over capital expenditure and new investments. But it said that it was still cautious in its forecasts for Tata Steel.

The rating outlook upgrade by Moody’s was after factoring in an EBITDA per tonne decline to $140-$150 in 2022-23 (Apr-Mar), and further to $40-$50 in 2023-24, from $180 in 2021-22.

Tata Steel’s EBITDA per tonne is estimated to decline due to lack of vertical integration at its European operations “and the wide swings in the business’ profitability in previous years,” said Moody’s.

Looking at Tata Steel’s liquidity metrics, the rating agency said that the company’s $3.1 bln in cash and liquid investments at the end of March 2022 indicated a good liquidity position.

But it cautioned that “given the inherently volatile steel industry, some unevenness in intra-year working capital is likely, which could lead the company (Tata Steel) to continue relying on short-term 364-day working capital facilities.”

Cochin Shipyard allowed by SEBI to use ETF route for public shr norm

24 Jun 2022

Cochin Shipyard Ltd, a government-owned company, has been permitted by the Securities and Exchange Board of India to comply with the 25% minimum public shareholding requirement by way of government reducing its stake through CPSE Exchange Traded Fund issue in February 2020.

The company said in an exchange filing today that SEBI has given a one-time relaxation on the sale of shares by the government, as a method to comply with the minimum public shareholding norm.

After a buyback of shares by Cochin Shipyard in October 2018, the public shareholding had fallen to 24.79%.

Following the CPSE ETF tranche of February 2020, the company’s promoter holding went up to 27.14%. But since the method was not a part of the approved methods of meeting the 25% minimum public shareholding norm SEBI had directed the company to comply by December 2020.

Subsequently, the company said, the government requested SEBI to allow disinvestment through the ETF route as one of the methods for achieving the compliance with the minimum public shareholding rule.

Varun Beverages chairman settles insider trading norm breach probe

 22 Jun 2022

The chairman and promoter of Varun Beverages Ltd, Ravi Kant Jaipuria, has paid 5.6 mln rupees to the Securities and Exchange Board of India to settle an investigation against him for allegedly having violated the insider trading norms.

According to a settlement order issued by SEBI on Tuesday, a show cause notice was issued to Jaipuria for having allegedly passed on unpublished price sensitive information pertaining to a strategic partnership between Varun Beverages and PepsiCo India during December 2017 to January 2018.

SEBI was probing whether Jaipuria, who was also a director in Lemon Tree Hotels, had communicated the information to two directors of Lemon Tree Hotels, chairman and managing director, Patanjali Keswani, and independent director, Arvind Singhania when they met in a hotel in Bangkok.

SEBI investigation had found that shares of Varun Beverages were bought by two entities controlled by Keswani and Singhania during the period when news of partnership with PepsiCo India was not in the public domain and sold it all immediately after the news was announced by Varun Beverages and the prices had moved up in reaction to the announcement.