Endeavour Trade and Investment Ltd — Combination C-2022/06/938

Non-Confidential Version COMPETITION COMMISSION OF INDIA 12th August 2022 Notice under Section 6(2) of the Competition Act, 2002 given by Endeavour Trade and Investment Limited

CORAM: Mr. Ashok Kumar Gupta Chairperson Ms. Sangeeta Verma Member Mr. Bhagwant Singh Bishnoi Member

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

1. On 10th June 2022, the Competition Commission of India (Commission) received a notice (Notice) under Section 6(2) of the Competition Act, 2002 (Act), given by Endeavour Trade and Investment Limited (Endeavour/Acquirer). The Notice was given pursuant to the execution of the Share Purchase Agreement dated 15th May 2022 between Holderfin B.V. (Holderfin) and Endeavour. 2. The Commission, vide its communication dated 1st July 2022, issued under Regulation 14(3) of the Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations, 2011, required the notifying party to remove defects in the Notice and furnish certain information relevant for the purpose of assessment of the Proposed Combination. The Acquirer furnished their response vide submissions dated 5th July 2022, 14th July 2022 and 8th August 2022.

3. The Proposed Combination envisages acquisition of the entire issued ordinary share capital of Holderind Investments Limited (Holderind/Target) by Endeavour from Holderfin. Further, consequent to the acquisition of 100% share capital of Holderind by Endeavour, it would indirectly acquire ~63.11% of the equity share capital of Ambuja

Cements Limited (Ambuja) and ~4.48% of the paid-up equity share capital of ACC Limited (ACC), which are presently held by Holderind. It is relevant to note that Ambuja holds 50.05% of the paid up equity share capital of ACC. Thus, by virtue of acquisition of 63.11% of the paid up equity share capital of Ambuja, Endeavour will also acquire control over Ambuja. Further, as a result of the aforementioned acquisition, Endeavour is required to make open offer for additional acquisition of up to 26% of the expanded share capital of each of Ambuja and ACC, as per the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code).

4. It has been submitted that Endeavour, a newly incorporated company, does not have any operation in India. It is part of the Adani group, which is an integrated infrastructure player with businesses in industry verticals, viz., resources, logistics and energy.

5. The Target is present in the Indian cement sector through Ambuja and ACC. Ambuja is engaged in the manufacture and sale of cement. It operates six integrated cement plants in Rajasthan, Gujarat, Maharashtra, Chhatisgarh and Himachal Pradesh, two packing plants in Maharashtra and Kerala, as well as five bulk cement terminals and eight grinding stations. Its operational cement plants have an installed capacity of ~31 MTPA.

6. ACC is engaged in the manufacture of cement and ready-mix concrete (RMC). It operates 17 cement plants and 78 ready-mixed concrete plants across India. Its operational cement plants have an installed capacity of ~34 MTPA.

Horizontal Overlap

7. It has been submitted that Holderind, through its downstream entities, is engaged in the manufacture and supply of cement in India. Adani Enterprises Limited (AEL), an entity of the Adani group, has incorporated two wholly owned subsidiaries, viz., Adani Cement Industries Limited (ACIL) and Adani Cementation Limited (ACL), to carry on the business of cement manufacturing. The proposed, but not yet operational, activities of ACIL and ACL in the cement sector are as follows:

- Lakhpat Project (Gujarat): ACL is in the process of setting up an integrated cement project in Taluka Lakhpat, Kutch, Gujarat, with a production capacity of 10 MTPA with respect to each clinker and cement, limestone mine for 12 MTPA, 99 MW captive power plant and a berthing jetty of 19 MTPA capacity (Lakhpat Project). Commercial operations and construction for Phase I of the Lakhpat Project (i.e., ********* clinker capacity) are expected to commence by *************. In Phase I, only the clinker unit of the Lakhpat Project is proposed to be commissioned. During Phase I, the Lakhpat Project will neither grind nor supply cement. The clinker manufactured at Lakhpat Project will be supplied to Raigad Project and Dahej Project for grinding;

- Raigad Project (Maharastra): ACL has acquired land for development of a cement grinding unit with proposed cement production capacity of 4.5 MTPA and fly ash processing capacity of 0.5 MTPA in Raigad District in Maharashtra (Raigad Project). Commercial operations and construction for Phase I of Raigad Project (i.e., ********* grinding/installed capacity) are expected to commence by ****** ****; and - Dahej Project (Gujarat): ACIL has commenced construction of 1.0 MTPA standalone cement grinding unit at Dahej, Gujarat (Dahej Project). This is likely to be operational by February 2023.

8. The above projects of the Acquirer group would exhibit horizontal overlap with the business activities of ACC and Ambuja in the foreseeable future. Thus, the Proposed Combination merits competition assessment considering the proposed cement industry related operations of Adani group in the cement sector. It has been submitted that the market for grey cement in the western region, comprising the states of Gujarat and Maharashtra, could be taken as the relevant market for assessment of the Proposed Combination, given that the cement plants of ACIL and ACL are expected to be operational in a phased manner in Gujarat and Maharashtra. Even though the Acquirer has furnished an estimate of likely market shares in each of the states of Gujarat and Maharashtra, the Commission does not find it necessary to precisely delineate the relevant market, as the horizontal overlap between the activities of Acquirer group and Holderind is not likely to raise competition concerns in any of the plausible relevant markets.

9. The focus of competition assessment in combination cases is to ascertain the combined market position of the parties, its impact on the structure of the relevant markets and its vulnerability to anticompetitive outcomes, i.e., appreciable adverse effect on competition (AAEC). In the instant matter, the Acquirer, an entrant in the cement industry, is acquiring one of the known cement brands in India. However, the market share estimates show that the incremental capacities/market shares of the parties during CYs 2023–2025 are not significant. It is also observed that other cement manufacturers have announced their plans to expand capacity in the Maharashtra and Gujarat regions.

Vertical Interfaces a. Supply of limestone for cement manufacturing

10. Limestone is used as an input in the manufacturing of cement as a key raw material. The industry practice regarding sourcing limestone for manufacture cement is to mine it captively, as it helps retain the value addition in manufacturing cement within the company. Sourcing limestone from third parties is limited to strategic reasons such as quality control and securing mine life. In CY 2021, Ambuja and ACC sourced less than 5 % of its total requirement of limestone from third parties. Limestone is a low-value heavy material, transportation of which involves considerable cost. This is one of the pertinent reasons for cement manufacturers to prefer sourcing limestone from captive mines located within their vicinity. The Acquirer has submitted that sourcing of limestone is financially unviable if it is to be transported for a distance more than 25–30 kms.

11. ACL has limestone mines at Taluka Lakhpat, Kutch, Gujarat, that have roughly 325 MT of limestone resources. This limestone mine is currently not operational. ACL has also procured limestone mines for its integrated cement project at Lakhpat, which will be captively used for cement production at their own integrated plant. The extent of market-facing activities of ACL towards the sale of limestone in Gujarat to third parties will be negligible or non-existent. Any potential limestone procurement by Holderind (including its downstream affiliates) from ACL will depend on financial feasibility and transportation costs involved. The cement plants operated by Holderind (including its downstream affiliates) in Gujarat are located at distances more than 500 kms from the limestone mine leased by ACL. Thus, the vertical interface between the limestone operations of the Acquirer and cement operation of ACC and Ambuja are not significant, and the same does not raise any input foreclosure concerns.

b. Supply of fly ash for cement manufacturing

12. Fly ash is utilised for various construction-related purposes, such as cement and concrete production, manufacture of ready-mix concrete, construction of road, manufacturing of bricks/blocks/tiles, land reclamation, waste land development, mine filling, etc. AEL, Adani Power Limited including its subsidiaries and Adani Electricity Mumbai Limited generate fly ash as a by-product of power generation in the thermal power plants operated by these entities. Of the total fly ash generated by thermal power stations in India during FY 2020–21, ~26% was utilized in the cement industry. In terms of volume, the aggregate of fly ash consumed by Ambuja and ACC was less than 15 MT during CY 2021. Supplies of fly ash by the Acquirer group during FY 2021–22 was less than 10 MT. It is observed that, apart from the Acquirer group, there are several other power plants located in nearby region from whom cement manufacturers could procure fly ash. Accordingly, this interface between fly ash generation by the Acquirer and cement manufacturing is also not likely to raise any foreclosure concerns.

c. Supply of coal to cement manufacturers

13. It has been submitted that coal is used by cement manufacturers to generate power as well as fuel for their kilns, which are used for the clinkerisation. AEL provides coal management services to its customers such as miners/cement companies for procurement of imported coal. Coal management services or coal trading can range from taking the risk, responsibility and accountability of sourcing coal from suppliers; managing sea-borne logistics; providing intermediate holding facility at discharge ports and inland transportation; to finally delivering coal at the doorstep of customers.

14. It has been submitted that, in FY 2021–22, the aggregate coal dispatched and imported into India was 928.13 MT. Domestically produced coal is predominantly supplied in India by government entities as the tendering of coal blocks is undertaken by the Ministry of Coal through Coal India Limited. Coal India Limited dispatched 661.89 MT during 2021– 22, constituting around 70% market share. Private players cumulatively account for less than 25%. The thermal power sector remains the largest consumer of coal in India. The demand of coal from the cement industry is negligible.

15. The coal that is traded by AEL is imported from third parties. Currently, it does not operate any coal mine in India. AEL sold [25–30] MT of coal in FY 2021–22, out of which less than 10% was sold to cement manufacturers. During 2021, Ambuja and ACC had consumed less than 10 MT of coal.

16. AEL operates coal mines in Carmichael, Australia, which is stated to have a high calorific value (i.e., good-quality, high-priced coal). Such coal is generally not procured by cement manufacturers due to higher landed cost attributable to shipping, custom duty and transportation from port to destination. In contrast, the coal generally used to power kilns are domestically sourced, with lower calorific value. Thus, the coal imported by the Acquirer group does not appear to be a critical input in cement manufacturing, available only with the Acquirer group. Accordingly, the Proposed Combination does not appear to raise any foreclosure concerns insofar as the vertical interface arising out of the coal import activities of the Acquirer group and the cement manufacturing activities of the target entities.

d. Mine developer and operator (MDO) services to cement manufactures

17. It has been submitted that MDO services relate to the evacuation and management of mineral extracted from the mines. MDO services are availed for faster mine development, as the outsourcing model accelerates ramp-up and sustainable production. The choice of the business model adopted would depend on the commodity proposed to be mined, the resources of the mine owner, the end use of such commodity, the transportation costs involved, the vertical integration of mine owners, etc. AEL provides MDO services for coal and iron ore mines. However, currently, no Adani group entity is engaged in the supply of MDO services to any cement manufacturer in India.

18. Limestone and coal are the two mined inputs used in cement manufacturing. While lime is largely mined by the cement manufacturers themselves, the volume of coal consumed is relatively less and is generally procured from third parties. It has been claimed that outsourcing limestone mining is commercially not feasible. Thus, the linkage between MDO services and cement manufacturing is notional, and this vertical interface between the concerned activities of the parties are not significant to raise any competition concerns.

19. Besides the above, cement manufacturers such as ACC and Ambuja could avail port services offered by the Acquirer group for transportation of raw materials and cement. Further, the Acquirer group appears to consume cement for its construction activities/projects in several locations. Given the extent of consumption and choices available, the said consumptions do not appear to raise any competition concerns.

20. Considering the facts on record, including details provided in the Notice given under Section 6(2) of the Act and assessment of the Proposed Combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have any appreciable adverse effect on competition in India in any of the relevant market(s), and therefore, the Commission hereby approves the same under Section 31(1) of the Act.

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

22. The information provided by Acquirer is confidential at this stage in terms of and subject to the provisions of Section 57 of the Act.

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