Radhakishan Damani’s Been On A Three-Year Cement Chase
In the last three years, while most of Dalal Street was watching the rise in Radhakishan Damani’s retail fortune, the veteran investor was already eyeing his next big venture. And it couldn’t be more different than DMart, the supermarket chain that catapulted Damani from investor to successful entrepreneur and the fifth-richest Indian.
Damani now has his eye on cement.
In February 2006, the Damani family incorporated GSD Metals Pvt. with its registered office in Maharashtra. It dealt in metals with Damani’s wife, Shrikantidevi Damani, and his younger brother, Gopikishan Damani, as directors. Radhakishan Damani was appointed as an additional director in 2017 and towards the end of that year, the company’s name was changed to GSD Cements. In early 2018, the articles of association were altered to change the company’s business objective to manufacture and deal in cement and related products. Its trademark was registered as ‘Damani Cement’.
The same year, Damani teamed up with billionaire investor Rakesh Jhunjhunwala to bid for insolvent Binani Cement Ltd. While UltraTech Cement Ltd. won that bid, Damani’s interest in cement didn’t stop there.
What Is GSD Cements?
According to the 2018-19 annual report filed with the Ministry of Corporate Affairs, GSD (or Gopikishan Shivkishan Damani) Cements, has an authorised share capital of Rs 1 crore and paid-up capital of Rs 3 lakh. It reported losses in 2017-18 and 2018-19. And it has a negative net worth.
For 2018-19, according to the filings, the company paid Rs 14.5 lakh regarding preliminary geology feasibility, legal and paralegal advisory fees, stamp duty and charges for a bank guarantee. These payments were related to its failed bid for coal mines auctioned by Rajasthan through MSTC Ltd.
To be sure, coal is also a fuel for cement plants.
The creation of GSD Cements, the bid for Binani Cement, the interest in coal mines, and now the 20% holding in India Cements make Damani’s interest in the cement sector quite evident.
A reclusive man, Damani rarely has done an interview or discussed his investment interests publicly. Despite repeated efforts, BloombergQuint’s queries remained unanswered.
BloombergQuint reached out to Jhunjhunwala, Damani’s partner for Binani Cement bid. “Radhakishan Damani is a very smart investor. I wouldn’t like to comment on his recent preference, but at this point of time I don’t have any exposure in the cement space,” he said over the phone.
The India Cements Bet
The Damani family have been buying shares of India Cements for several months, raising their stake from 1.3% in September to nearly 20% in March. The Damanis are the largest shareholder in the southern cement maker after N Srinivasan, whose family founded the company before India’s independence in 1946.
If the Damani family’s stake or voting rights exceed 25%, they would have to make an open offer for 26% of the outstanding public shares under India’s takeover. Even a moderately successful offer would put the Damani shareholding above that of Srinivasan, a third of whose shares are pledged. That could make for a hostile takeover of one of India’s oldest cement makers.
Bloomberg reported that Damani has informally reached out to Srinivasan to explore a takeover. He requested a friendly change in the management and Srinivasan is exploring other investors as well to ward off any hostile bids, the report said.
India Cements, in an exchange filings, however, called reports of Damani considering taking control of the company as “factually incorrect”.
What Makes India Cements Attractive
India Cement offers the cheapest alternative to setting up a greenfield factory.
Its replacement cost is $63 a tonne. That’s not only lower than larger counterparts such as UltraTech, ACC Ltd. and Ambuja Cements Ltd., but also less than southern peers like Ramco Cement Ltd. And because of its large debt pile, India Cement trades at a 50% discount to industry’s weighted average replacement cost.
Of the 12 analysts tracked by Bloomberg, eight have a ‘Sell’ rating on Indian Cements, while the remaining four suggest ‘Hold’. None recommends ‘Buy’. The average of 12-month targets implies a potential downside of more than 43%.