Dalmia Cement (Bharat) Limited — Combination C-2022/12/993

COMPETITION COMMISSION OF INDIA 15.02.2023 Notice under Section 6(2) of the Competition Act, 2002 filed by Dalmia Cement (Bharat) Limited

CORAM:

Ms. Sangeeta Verma Acting Chairperson

Mr. Bhagwant Singh Bishnoi Member

Order under Section 31(1) of the Competition Act, 2002

1. On 16.12.2022, the Competition Commission of India (Commission) received a notice under sub-section (2) of Section 6 of the Competition Act, 2002 (Act) filed by Dalmia Cement (Bharat) Limited (Acquirer). The notice has been filed pursuant to the framework agreement dated 12.12.2022 (Framework Agreement), executed between the Acquirer, Jaiprakash Associates Limited (JAL), Jaiprakash Power Ventures Limited (JPVL), and Promoters of JAL represented by Shri Jaiprakash Gaur, Executive Chairman, Jaypee Infra Ventures Private Limited.

2. The proposed combination comprises the following transactions:

(i) Transaction 1(a): The acquisition by the Acquirer of 74% shareholding of Bhilai Jaypee Cement Limited (BJCL/Target 1) (on a fully diluted basis) from JAL. (ii) Transaction 1(b): The acquisition of a cement grinding unit located at Nigrie, Madhya Pradesh, owned by JPVL, along with all ancillary and connected assets, by the Acquirer on a slump sale basis (Target 2).

Combination Registration No. C-2022/12/993 (iii) Transaction 2: a. The acquisition by the Acquirer of 57% shareholding in East India Energy Private Limited, an SPV incorporated by JAL which will house a 180 megawatt (MW) power plant, located at Churk, Uttar Pradesh (Churk Power Plant), along with all ancillary and connected assets (Churk SPV/Target 3); b. Acquisition of certain business undertakings of JAL located at Rewa, Madhya Pradesh, including a cement plant (Rewa Plant) and all ancillary and connected assets (Target 4), on a slump sale basis; c. Acquisition of certain business undertakings of JAL located at Chunar, Uttar Pradesh, including a cement Plant (Chunar Plant) and all ancillary and connected assets (Target 5), on a slump sale basis; d. Acquisition of certain business undertakings of JAL located at Churk, Uttar Pradesh, including a cement plant (Churk Plant) and all ancillary and connected assets (Target 6), on a slump sale basis, and the Churk Plant owned by JAL, on a slump sale basis; and e. Acquisition of certain business undertakings of JAL located at Sadwa Khurd, Uttar Pradesh, including a cement blending plan (Sadwa Plant) and all ancillary and connected assets owned by JAL (Target 7), on a slump sale basis. (iv) Transaction 3: The acquisition by the Acquirer of the JP Super Plant (JP Super Plant) located at Sonebhadra, Uttar Pradesh, and all ancillary and connected assets (Target 8) on a slump sale basis.

Transaction 1(a), 1(b), 2 and 3 are collectively referred as the Proposed Combination. (Hereinafter, the Acquirer and Target 1 to Target 8 are collectively referred to as the Parties).

3. It is submitted in the notice that Transaction 3 of the Proposed Combination (i.e., the acquisition of the JP Super Plant) is subject to (i) the settlement of pending disputes between JAL and UltraTech Cement Limited and (ii) JAL assuming actual possession of the JP Super Plant (and connected mines, as described in Schedule II of the Framework

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Agreement), and the JP Super Plant being held by JAL on a going concern basis, free and clear of all encumbrances.

4. In terms of Regulation 14 of Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations), the Commission, vide its communication dated 10.01.2023, sought certain information(s)/clarification(s), inter alia, relating to the activities of the Parties; the response to the same was received on 19.01.2023. As the response received was incomplete in certain respects, in continuation to the letter dated 10.01.2023, another communication dated 01.02.2022 was sent. The response to the same was received on 04.02.2023. Further, the Acquirer provided certain information(s) through submissions dated 04.01.2023, 09.01.2023, and 08.02.2023.

Description of Parties

5. Acquirer: The Acquirer is engaged in the manufacture of grey cement and has 14 cement plants, which includes 08 integrated plants, 05 grinding units, and 01 clinker unit, located in 10 states across India, viz., Tamil Nadu, Andhra Pradesh, Karnataka, Odisha, West Bengal, Jharkhand, Bihar, Meghalaya, Assam, and Maharashtra.

6. Acquirer Group: The Acquirer belongs to the Dalmia Bharat Group (Acquirer Group) and is a wholly owned subsidiary of Dalmia Bharat Limited (DBL), which is the ultimate parent entity of the Acquirer Group. DBL directly and through its controlled entities is primarily engaged in the segments for (i) manufacture and sale of cement (through Acquirer, Calcom Cement India Limited (CCIL), and Alsthom Industries Limited (AIL)), (ii) manufacture and sale of sugar (through Dalmia Bharat Sugar Industries Limited (DBSL)), and (iii) provision of refractory services business (through Dalmia Bharat Refractories Limited (DBRL)) in India and Europe. In relation to the refractory business of the Acquirer Group, it is stated in the notice that the Acquirer Group will cease to provide refractory services to cement manufacturers in India in FY 2023. It is further stated that the Acquirer Group (through the Acquirer and DBSL) is Combination Registration No. C-2022/12/993 engaged in power generation in India. While a majority of the power generated by the Acquirer and DBSL is consumed captively, in order to facilitate its activities in the cement and sugar sectors, the Acquirer and DBSL sell a minuscule amount of excess power generated, in compliance with applicable regulations, to certain entities, including the relevant state electricity grids, for a remunerative tariff.

7. Target: At present, the Target comprises (i) BJCL, a cement manufacturing joint venture (JV) between JAL and SAIL, which operates a cement manufacturing unit in Babupur, Chhattisgarh and a clinker grinding unit in Bhilai, Chhattisgarh; (ii) Churk SPV, which will be a newly incorporated entity held as a JV between the Acquirer and JAL and will house the Churk Power Plant; and (iii) the Target Assets (i.e., Nigrie Plant, Rewa Plant, Churk Plant, Chunar Plant, Sadwa Plant, and JPSuper Plant), which are cement, clinker, and power generation related assets belonging to JAL and JPVL, which are/were engaged in the manufacture and sale of clinker in India, manufacture and sale of grey cement in the states of Madhya Pradesh, Uttar Pradesh, Jharkhand, Chhattisgarh, Bihar, and Uttarakhand, and (coal-based) thermal power generation (through the Rewa Plant, Chunar Plant, and Churk SPV) for captive consumption purposes in India. In case of Churk Plant, the power generated is sold, in compliance with applicable regulations, to its group entity, and the remaining power is consumed captively.

Identification of Overlaps and Relevant Market

Horizontal Overlap

8. It is submitted in the notice that the Acquirer Group (directly and indirectly) has presence in the market for (i) manufacture and sale of grey cement, (ii) manufacture and sale of clinker, and (iii) market for power generation, in which the Target is also active.

9. Grey Cement: It is stated in the notice that both the Acquirer Group (through the Acquirer, CCIL, and AIL) and the Target (through BJCL, Nigrie Plant, Rewa Plant, Sadwa Plant, Churk Plant, Chunar Plant, and JP Super Plant) are engaged in the Combination Registration No. C-2022/12/993 manufacture and sale of grey cement in India. Accordingly, the relevant product market for the purpose of the competition assessment is the “market for manufacture and sale of grey cement”. Further, it is stated that the Target has a cement-manufacturing unit at Bhilai, Chhattisgarh. Therefore, for the purpose of relevant geographic assessment, the state of Chhattisgarh is considered the first base state. Based on the results of the Elzinga Hogarty (EH) Test carried out at the LIFO (Little In From Outside) – LOFI (Little Out from Inside) thresholds of 10%, the relevant geographic market for the manufacture and sale of grey cement at the broad level is the region comprising the states of Chhattisgarh, Odisha, West Bengal, Bihar, and Jharkhand (Eastern Relevant Market). Furthermore, based on the results of the EH Test carried out at the higher LIFO – LOFI thresholds of 25%, the relevant geographic market for the manufacture and sale of grey cement at the narrow level is the region comprising the states of Chhattisgarh, Odisha, and Bihar (Narrow Eastern Relevant Market). Accordingly, the relevant market for the purpose of competition assessment at the broad level is the “market for the manufacture and sale of grey cement in the Eastern Relevant Market” and at narrow level is the “market for the manufacture and sale of grey cement in the Narrow Eastern Relevant Market”

10. Additionally, in relation to the market for manufacture and sale of grey cement, it is stated in the notice that, though the Target has cement-manufacturing units in the states of Madhya Pradesh (MP) and Uttar Pradesh (UP), the Acquirer Group does not have any cement manufacturing facilities in these states. Further, even if the states of MP and UP are considered the second base states for the purpose of the relevant geographic market assessment, and based on the past decisions of the Commission, the relevant geographic market is considered to be comprising the states of Uttar Pradesh, Madhya Pradesh, Rajasthan, Haryana, and Delhi (MP/UP Relevant Market), even then, the Acquirer Group does not have any cement manufacturing facilities in the MP/UP Relevant Market. However, in FY 2022, the Acquirer Group made nominal dispatches to the MP/UP Relevant Market.

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11. Clinker: It is stated in the notice that the Acquirer Group (through the Acquirer and CCIL) and the Target (through BJCL, Rewa Plant, and JP Supreme Plant) are engaged in the manufacture and sale of clinker in India, primarily for the purpose of captive consumption. Accordingly, both the Acquirer Group and Target are engaged in the “market for manufacture and sale of clinker in India”.

12. Power Generation: Further, it is stated in the notice that the Acquirer Group (through the Acquirer and DBSL) engages in the generation of power (through renewable and non-renewable sources) to facilitate its activities in the cement and sugar sectors. Similarly, the Target (through the Rewa Plant, Chunar Plant, and Churk SPV) engages in the generation of power through non-renewable sources for captive consumption. Thus, the Acquirer Group and the Target have activities in the broad “market for power generation in India” and in the specific segment for “thermal power generation in India”.

Vertical Relationship

13. The Acquirer has submitted that the activities of the Acquirer Group and Target do not exhibit any existing vertical relationship. However, the Acquirer Group (through the Acquirer, CCIL, AIL, and DBRL) exhibits certain potential vertical relationships with the Target in the refractory services and clinker market.

14. Refractory services: It is submitted in the notice that the Acquirer Group (through DBRL) provides refractory services such as bricks, castables, and application of refractory products in India. These services may be availed by manufacturers of cement, such as the Target. Accordingly, there could be a potential vertical relationship in the upstream market for the provision of refractory services in India and downstream market for procurement of refractory services in India. However, in November 2022, the Acquirer Group entered into an agreement with RHI Magnesita India Limited for the acquisition of the refractory business of DBRL. Upon closing of the deal in FY 2023, the Acquirer Group will cease to provide refractory services to cement manufacturers in Combination Registration No. C-2022/12/993

India. Therefore, the potential vertical relationship between the Acquirer Group and the Target will also no longer exist.

15. Clinker: It is submitted in the notice that there is a potential vertical relationship between the provision of clinker in India by the Target, i.e., “market for manufacture and sale of clinker in India”, and procurement of clinker in India by Acquirer Group, i.e., “market for procurement of clinker in India”.

16. The Commission decided to assess the Proposed Combination in the segments identified by the Parties. However, exact delineation of the relevant market is left open, as the material available on record does not suggest that the Proposed Combination is likely to cause any competition concern in India.

Assessment of the Proposed Combination

17. Based on the submissions of the Acquirer, it is noted that, in FY 2021-22, the combined market share of the Parties in the market for the manufacture and sale of grey cement in the Eastern Relevant Market was in the range of [10-15]% and the Narrow Eastern Relevant Market was in range of [15-20]% in terms of installed capacity and in the range of [10-15]% in terms of volume; however, the incremental market share in both these markets was in the range of [0-5]%, both in terms of installed capacity and volume. Further, there are other players in the market for the manufacture and sale of grey cement in the Eastern Relevant Market/Narrow Eastern Relevant Market, such as Nuvoco Vistas Corporation Limited, UltraTech, Shree Cements Limited, the Adani Group, JSW Cement, Birla Corporation, Ramco Cements Limited, J.K. Lakshmi Cement Limited, Sita Cement Limited, and Shiva Cement Limited, among others.

18. Further, in relation to the MP/UP Relevant Market, based on the submissions of the Acquirer, it is noted that the market share of the Acquirer Group on the basis of the dispatches made by it to the MP/UP Relevant Market was in range of [0-5]% and nil in terms of installed capacity. Separately, the market share of the Target in the MP/UP

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Relevant Market was also in the range of [0-5]% only. As such, the combined market share was in the range of [5-10]% in the MP/UP Relevant Market.

19. Based on the submissions of the Acquirer with respect to the market for manufacture and sale of clinker in India, it is noted that both the Acquirer Group (through the Acquirer and CCIL) and Target engage in the manufacture and sale of clinker, primarily for the purpose of captive consumption. In FY 2022, most of the clinker produced by the Acquirer Group was either utilised captively for the manufacture of cement or sold to related parties (i.e., intra-group sales). Only a minuscule amount was sold to third-parties. Further, in FY 2022, the market share of the Acquirer Group was in the range of [5-10]% and that of the Target was in range of [0-5]% only, in terms of installed capacity.

20. Further, based on the submissions of the Acquirer with respect to the market for power generation in India and its narrower segment, i.e., market for thermal power generation in India, it is noted that both the Acquirer Group and Target have minuscule market shares in terms of installed capacity in each of these markets. Also, these markets are characterised by the presence of other private sector and public sector players, such as National Thermal Power Corporation, Tata Power Company Limited, Adani Power Limited, and Maharashtra State Power Generation Corporation.

21. With respect to the potential vertical relationship between the Acquirer Group and Target in the markets for provision and procurement of clinker in India, it is noted that, in terms of installed capacity, the Target has a market share in the range of [0-5]% in the market for the manufacture and sale of clinker in India. Further, the market for procurement of clinker in India is characterised by the presence of several vertically integrated players like the Acquirer Group, such as Shree Cement, Nuvoco Vistas, and Ultratech, which manufacture clinker to facilitate their cement manufacturing operations.

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22. Considering the facts on record, including the details provided in the notice given under sub-section (2) of Section 6 of the Act, and the assessment of the Proposed Combination on the basis of factors stated in sub-section (4) of Section 20 of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have an appreciable adverse effect on competition in India. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.

23. This order may stand revoked if, at any time, the information provided by the Acquirer is found to be incorrect.

24. The information provided by the Acquirer shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.

25. The Secretary is directed to communicate to the Acquirer accordingly.