India Business Excellence Trust IV (IBEF IV) and others — Combination C-2022/07/954

Notice under Section 6(2) of the Competition Act, 2002, jointly filed by India Business Excellence Fund IV; India SME Investments Fund-I; Motilal Oswal Finvest Limited; Aghara & Sons; Ceramiche Speranza SPA; and the Partners of Simpolo Ceramics.

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 12th July, 2022, the Competition Commission of India (Commission) received a notice under Section 6(2) of the Competition Act, 2002 (Act) filed by India Business Excellence Fund IV (IBEF IV); India SME Investments Fund-I (India SME); Motilal Oswal Finvest Limited (MOFL); Aghara & Sons (Aghara); Ceramiche Speranza SPA (Creamiche); and the Partners of Simpolo Ceramics (SC). IBEF IV, India SME, MOFL, Aghara, Creamiche and SC Partners shall be collectively referred to as the Acquirers.

2. In relation to the Proposed Combination, the concerned parties have entered into a Share Subscription and Share Purchase Agreement dated 23rd June 2022 executed amongst inter alia Simpolo Vitrified Private Limited (SVPL), Nexion International Private Limited (Nexion), SC, IBEF IV, India SME, MOFL, Partners of SC, Aghara and Ceramiche; and a Shareholders Agreement dated 23rd June 2022 executed amongst inter alia SVPL, Nexion, SC, IBEF IV, India SME, MOFL, SC, Aghara and Ceramiche.

3. The Proposed Transaction involves acquisition of shareholding in SVPL by the Acquirers in the following manner:

3.1. Step 1: Transfer of the business of SC (which involves designing, manufacturing, supplying and distributing all types of sanitaryware and bath fittings, faucets and allied products, in India and overseas) to SVPL, pursuant to a Business Succession Agreement proposed to be executed between SC and SVPL. In consideration for this certain equity shares of SVPL shall be issued to the Partners of SC.

3.2. Step 2: (a) Subscription by IBEF IV, India SME, MOFL to certain compulsorily convertible preference shares of SVPL, respectively; and (b) purchase by IBEF IV, India SME, MOFL to certain equity shares of SVPL, respectively, from Shree Ganesh Trading, an existing shareholder in SVPL; and 3.3. Step 3: Demerger of the business of Nexion (which involves designing, manufacturing, supplying and distributing of tiles including vitrified tiles to builders, architects and home owners both in India and overseas) into Nexion Surfaces, a wholly owned subsidiary of the SVPL. In consideration thereof, certain equity shares of SVPL shall be issued to the shareholders of Nexion, i.e., Aghara and Ceramiche. To this end, a scheme of arrangement under Section 230 of the Companies Act, 2013 shall be filed with the relevant bench of the National Company Law Tribunal.

4. Additionally, the IBEF IV, India SME, MOFL and Ceramiche would enjoy certain contractual rights pursuant to the Shareholders Agreement. These include information rights, access to business plan and annual budget; right to appoint directors and members; observers of board committees; and certain affirmative voting rights, in SVPL.

5. IBEV IV is a category II Alternative Investment Fund registered with the Securities and Exchange Board of India. It primarily invests in equity and equity-linked instruments and/or debt and/or mezzanine or other instruments of Indian or India related companies. It is a sector-agnostic fund, providing growth capital to mid-sized companies.

6. MOFL is a non-banking financial company registered with the Reserve Bank of India. It is primarily engaged in lending and related activities. MOFL and IBEF IV both belong to the Motital group. MOFL is a wholly owned subsidiary of Motilal Oswal Financial Services Limited (MOFSL). MO Alternate Investment Advisors Pvt. Ltd., another wholly owned subsidiary of MOFSL, is the investment manager of IBEF IV.

7. India SME is a private equity fund under the SEBI AIF CAT II License in India.

8. The partners of SC form part of the core promoter group in SVPL. Seven (out of eleven) of the SC Partners1 also hold 68% interest in Aghara. As such, these seven SC Partners (i.e., the Aghara Partners) presently have an interest in each of SVPL, Nexion (through Aghara) and SC. Aghara is an investment firm, with no business operations in India except its 50% shareholding in Nexion.

9. Ceramiche does not have any business operations in India, and only has 50% shareholding in Nexion, which is engaged in designing, manufacturing, supplying and distributing of tiles including vitrified tiles to builders, architects and home owners both in India and overseas. Ceramiche SPA is the parent entity of Consorzio Digit Tile S.C.R.L, incorporated in Italy. Consorzio Digit Tile S.C.R.L. is into wholesale trading of tiles, wood, construction materials and sanitary equipments in Italy.

10. It is observed that the businesses of the target entities encompass manufacture and sale of tiles and bathware. The proposed Combination primarily concerns tiles market given that: (a) both Nexion and SVPL are engaged in manufacture and sale of vitrified tiles in India as well as trading of tiles manufactured by third parties; (b) Magicrete Building Solutions Private Limited, an investee company of IBEF IV is engaged in the business of manufacturing and selling tile adhesives, water proofing solutions and precast construction solutions.

1 Namely: (i) Jitendrabhai Thakarshibhai Aghara, (ii) Sunandaben Jitendra Aghara, (iii) Bharatbhai Thakarshibhai Aghara, (iv) Ashitaben Bharatbhai Aghara, (v) Thakarsibhai Gandubhai Aghara, (vi) Dhirajlal Thobhanbhai Aghra, and (vii) Jayeshbhai Thobanbhai Aghara, collectively hold 68% interest in Aghara (collectively, Aghara Partners).

11. Tiles can be used on floors, walls and roofs. Tiles could be classified as ceramic and vitrified (porcelain). Vitrified tiles could be further segmented based on its thickness, colour, method of polishing and design. However, the process of manufacturing all these categories of tiles is said to exhibit similarities. The Commission notes that the combined market presence of Simpolo and Nexion is not significant. Further, the tiles industry in India features the presence of several other larger players like Kajaria, AGL, Somany and Johnson. Thus, the proposed combination is not likely to result in any significant market position to the combined entity as well as any foreclosure concern.

12. Considering the material on record, including the details provided in the notice and the assessment of the Proposed Combination based on 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. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.

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

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

15. The Secretary is directed to communicate to the Acquirers accordingly.