Katsura Investments and Varmora Granito Private Limited — Combination C-2022/07/960

Notice under Section 6(2) of the Competition Act, 2002, jointly filed by Katsura Investments and Varmora Granito Private 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 27th July, 2022, the Competition Commission of India (Commission) received a notice under Section 6(2) of the Competition Act, 2002 (Act) jointly filed by Katsura Investments (Acquirer) and Varmora Granito Private Limited (Target).

2. The notice is filed pursuant to, inter alia, (i) Share Subscription and Purchase Agreement (SSPA) dated 2nd June 2022, entered by and amongst Target, Bhavesh Varmora, certain promoters of Target and Acquirer, and Shareholders Agreement (SHA) dated 2nd June 2022, entered into by and amongst Target, Acquirer and the promoters of Target.

3. The Proposed Transaction envisages the following inter-connected and inter-related steps:

(a) The Acquirer is proposing to acquire up to 40% of the equity shareholding in the Target on a fully diluted basis by way of primary issuance1 and secondary acquisition of shares2. (along with certain specified rights in certain entities), which could increase upto 51% of voting rights in the Target in case of occurrence of DVR Rights Trigger Event (defined in the SHA).

(b) The Target is proposing to acquire 30% ownership interest in Renite Vitrified LLP (Renite) from certain current promoters of Renite and 55% ownership interest in Simola Tiles LLP (Simola).

(c) The Acquirer will acquire certain affirmative veto rights and board rights in the Target and subsidiaries of the Target, i.e., Tocco Ceramic Private Limited (Tocco Ceramic); Solaris Ceramics Private Limited (Solaris Ceramics); Conffi Sanitaryware Private Limited (Conffi Sanitaryware); Covertek Ceramica Private Limited (Covertek Ceramica); Varmora Ceramics Private Limited (Varmora Ceramics); and Nextile Marbosys Private Limited (Nextile) (collectively referred to as Subsidiaries) (Target and Subsidiaries are collectively referred to as Varmora Entities, and Varmora Entities, Simola, and Renite are collectively referred to as Target Entities) (Hereinafter, Acquirer and Target Entities are referred to as Parties).

(d) The Acquirer will also acquire certain information rights in relation to the Target, Subsidiaries, and the joint ventures of the Target, i.e., Fiorenza Granito Private Limited (Fiorenza); Sentosa Granito Private Limited (Sentosa); and Avalta Granito Private Limited (Avalta) (Fiorenza, Sentosa, and Avalta collectively referred to as Joint Ventures) and Renite. 1 It is stated in the notice that the Acquirer will subscribe to (i) the Compulsorily Convertible Cumulative Participating Preference Shares (CCPS) and (ii) Equity Shares with Differential Voting Rights (DVR shares), issued and allotted by the Target by way of primary issuance. In relation to DVR shares, it is stated that, at the time of subscription of the DVR shares by the Acquirer, the DVR shares shall have (i) no voting rights; (ii) no right to dividend; and (iii) no share in the economic share capital of the Target, including in case of winding up or liquidation. 2 In respect of secondary acquisition by the Acquirer in the Target, it is stated that, in addition to the primary issuance, the Acquirer shall acquire equity shares from certain Promoters of the Target (Sale Shares).

(e) Prior to the closing of the Proposed Transaction, an internal restructuring of the Target group is proposed, whereby Target will increase its shareholding in Group Companies, i.e., Conffi Sanitaryware, Nextile Marbosys, Tocco Ceramic, and Solaris Ceramics, to 100% (All above transactions are collectively referred to as Proposed Combination).

4. Considering that the increase of voting rights by the Acquirer up to 51% in the Target would happen only upon occurrence of DVR Rights Trigger Event, the notification requirement under Section 6(2) of the Act for the acquisition of voting and other rights pursuant to DVR Rights Trigger Event shall be examined by the Acquirer at the time of the occurrence of such event. Accordingly, for the purposes of this Order, the step to the Proposed Combination mentioned in Para 3(a) above is limited only to acquisition of up to 40% equity shareholding in the Target by the Acquirer on a fully diluted basis.

5. The Acquirer is a newly formed Special Purpose Vehicle incorporated under the laws of the Republic of Mauritius and does not have any business activities in India. It is ultimately controlled by the funds managed by the affiliates of the Carlyle Group Inc. (Acquirer Group). It is solely controlled by CAP Growth II, L.L.C. (CAPG II), an investment fund that is advised by the affiliates of the Acquirer Group.

6. The Acquirer Group is a global alternative asset manager which manages funds that invest globally across three investment disciplines: (a) global private equity (including corporate private equity, real estate, and natural resources funds); (b) global credit (including liquid credit, illiquid credit, and real assets credit); and (c) investment solutions (private equity fund of funds program, which include primary fund, secondary, and related co-investment activities).

7. Varmora Entities belong to the Varmora group, which comprises the Target as the ultimate parent entity and all its downstream affiliates in India (including the Group Companies, Subsidiaries, and Joint Ventures). The business operations of Varmora Entities can broadly be divided into ceramic tile manufacturing and sanitaryware (including faucets and sinks). Within ceramic tile manufacturing, Varmora Entities are primarily engaged in manufacturing of building materials, particularly slabs, floor tiles, wall tiles, and tiles adhesives & allied, etc.

8. Renite is a manufacturer and supplier of vitrified tiles. It is a Limited Liability Partnership (LLP), wherein 30% ownership interest is currently held by the promoters, while the remaining 70% ownership interest is held by unrelated third parties.

9. Simola is an LLP currently engaged in the business of manufacturing vitrified tiles in India. It is a reputed manufacturer of technically advanced vitrified tiles, providing an expansive range of vitrified tile decor options for home and commercial interiors.

10. In relation to overlaps between the Acquirer Group and the Target entities, it is submitted in the notice that there are no horizontal overlaps between the Acquirer/Acquirer Group and its Affiliates and the Target Entities and their Affiliates. However, there exists a vertical relationship between Altadia (an Affiliate of the Acquirer Group) and the Target Entities and their Affiliates in India.

11. With respect to Altadia, it is stated in the notice that Altadia is an Affiliate of the Acquirer Group, over which it exercises sole control. It is headquartered in Spain and is engaged in the development, production, and marketing of ceramic tile intermediates. It is present in India physically through Fritta India Private Limited (Fritta India), an Indian subsidiary of Fritta S.L.U. With respect to the distribution model of Altadia in India, it is submitted that Altadia does not sell its products directly in India and only sells them through Fritta India or its distributors.

12. It is submitted that Altadia is engaged in providing certain ceramic tile intermediates to ceramic tiles manufacturers, namely, Body Stains; Special/Effects Inks; Frits & Glazes; Glaze Stains; and Body Binders (collectively referred to as Relevant Products). Further, Altadia supplied (i) Digital Inks to the Target, Nextile, and Solaris Ceramics and (ii) Body Stains to the Target, Simola, Nextile, and Tocco Ceramic (Target, Simola, Nextile, Solaris Ceramics, and Tocco Ceramic are collectively referred to as Relevant Target Entities). It is stated in the notice that Relevant Target Entities have not purchased any other product from Altadia, therefore, the Existing Vertical Linkages are only in the markets for: (i) Body

Stains and (ii) Special/Effects Inks, in India. Further, there are certain Potential Vertical Linkages between Altadia and certain Target entities in the markets for: (i) Frits & Glazes; (ii) Glaze Stains; and (iii) Body Binders.

13. Accordingly, it is submitted that, for the purposes of competition assessment, the broad upstream relevant market may be considered as “Market for the supply of Relevant Products to the ceramic manufacturers in India” (Broad Upstream Relevant Market) which may be further sub-segmented into the narrow upstream relevant markets as (i) “Market for the supply of Body Stains in India”, (ii) “Market for the supply of Digital Inks in India”, (iii) “Market for the supply of Glaze Stains in India”, (iv) “Market for the supply of Body Binders in India”, and (v) “Market for the supply of Frits & Glazes in India” (Narrow Upstream Relevant Markets); and the Downstream Relevant Market may be considered as Market for manufacturing ceramic tiles in India (Downstream Relevant Market) (Hereinafter, together referred to as Relevant Markets).

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

15. Based on the submissions in the notice in relation to the existing vertical linkages, it is noted that the market shares of Altadia in the Narrow Upstream Markets for the supply of Body stains and Digital Stains in India are in the range of [15-20]% and [35-40]%, respectively, in terms of value; however, the market shares of the Target entities in the Downstream Market are in the range of [0-5]% only in terms of value. Further, each of the Relevant Markets comprise many organised and unorganised players. In relation to the Potential Vertical Linkages, it is noted that the market shares of Altadia in the Narrow Upstream Markets for the supply of Glaze Stains, Body Binders, and Frits & Glazes in India are in the range of [0-5]% only in terms of value and volume. Thus, in view of foregoing, it appears that the Existing and Potential Vertical Linkages between Altadia and the Target entities are not likely to raise any competition foreclosure concerns.

16. Considering the material on record, including the details provided in the notice given under Section 6(2) of the Act, and the assessment of the Proposed Combination on the basis of factors stated in Section 20(4) 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.

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

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

19. The Secretary is directed to communicate to the Parties accordingly.