Jsquare Electrical Steel Nashik Private Limited

Page 1 of 8 COMPETITION COMMISSION OF INDIA Combination Registration No. C-2024/10/1202 10th December 2024 Notice under Section 6(2) of the Competition Act, 2002 given by Jsquare Electrical Steel Nashik Private Limited CORAM: Ms. Ravneet Kaur Chairperson Mr. Anil Agrawal Member Ms. Sweta Kakkad Member Mr. Deepak Anurag Member Order under Section 31(1) of the Competition Act, 2002 1. On 29th October 2024, the Competition Commission of India (Commission) received a notice (Notice), under sub-section (2) of Section 6 of the Competition Act, 2002 (Act), given by Jsquare Electrical Steel Nashik Private Limited (Jsquare). The Notice has been given pursuant to execution of the Share Purchase Agreement between the Jsquare, thyssenkrupp Electrical Steel GmbH (Seller 1/tkES), and thyssenkrupp Electrical Steel UGO S.A.S. (Seller 2) on 18th October 2024. Combination Registration No. C-2024/10/1202 Page 2 of 8 2. Jsquare, vide communications dated 11th November 2024 and 25th November 2024 issued under Regulation 14 of the Competition Commission of India (Combinations) Regulations, 2024 (Combination Regulations), was required to remove defects from the Notice and furnish certain information relevant for the purpose of assessment of the combination. Jsquare made its submissions dated 18th November 2024, 28th November 2024, and 4th December 2024. 3. The Proposed Combination envisages an acquisition of 100% of the share capital of thyssenkrupp Electrical Steel India Private Limited (Target) on a fully diluted basis by Jsquare from Seller 1 and Seller 2. Further, certain associated agreements are being entered into amongst two or more of the Target, some of the entities belonging to the seller group, and JSW Steel Limited (JSW Steel). These agreements inter alia provide for supply of substrate to the Target for certain period, and assignment/licencing of intangible properties related to manufacturing of Grain-Oriented Electrical Steel (GOES) to JSW Steel. Further, JSW Steel and some of the entities belonging to the seller group may enter into certain supply agreements, if considered necessary. 4. Jsquare is a newly incorporated company with 100% shareholding held by JSW JFE Electrical Steel Private Limited (J2ES). J2ES is a 50:50 joint venture between JSW Steel and JFE Steel Corporation (JFE Steel). J2ES currently does not have any commercial operations. In August 2023, JFE Steel and JSW Steel formed a joint venture viz., J2ES, for the production of GOES, with the aim of establishing an integrated manufacturing system in India. The manufacturing site of this newly formed joint venture is proposed to be constructed at Bellary in Karnataka, India. J2ES’s plant is in the initial stages of equipment planning and is expected to commence operationalisation by 2027. The Proposed Combination enables JSW Steel’s entry into GOES segment, sooner than J2ES’ expected operationalisation. The Proposed Combination will promptly establish an integrated system from manufacturing to sales of GOES in India to meet the growing demand for GOES in the future. Combination Registration No. C-2024/10/1202 Page 3 of 8 5. It has been submitted that the Target is an indirect wholly-owned subsidiary (WoS) of thyssenkrupp AG’s (tkAG), a German Stock corporation (Aktiengesellschaft). tkAG is the ultimate parent company of the thyssenkrupp group (thyssenkrupp). As a diversified industrial group, thyssenkrupp is primarily active in the production and trading of materials, industrial and capital goods, and engineer services and solutions for industrial processes and sustainable technological change. 6. The Target is engaged in the business of manufacturing of GOES, a type of electrical steel, in India at its plant located in Nashik, Maharashtra. The installed capacity of the Target for manufacturing GOES is 50,000 tonnes per annum. The Target has plans for expanding the capacity by adding certain additional capacity, which is dependent on certain factors. 7. It has been submitted that the Electrical steel, also known as electrical grade steel or silicon steel, is a specialized type of steel used primarily in the electrical industry due to its unique magnetic properties. It is crucial for the efficient operation of electrical devices like transformers, motors, and generators. GOES and the Non-Grain Oriented Electrical Steel (NGOES) are two types of Electrical steel. The GOES is a material primarily employed in the core of transformers to enhance their magnetic properties. By carefully incorporating silicon into iron through specific manufacturing techniques, the magnetic and electrical characteristics of iron can be greatly improved, resulting in a robust magnetic core for transformers and other electrical devices. GOES is often regarded as the most energy-efficient type of steel and is extensively employed as the core material in various types of transformers. These components are integral to electrical systems, where energy loss can be substantial. By using GOES, manufacturers can reduce hysteresis and eddy current losses, which leads to improved overall efficiency. Even minor imperfections such as stresses, burrs, edge cambers, or bends in the GOES sheet can escalate core losses and magnetize current substantially. Compared to other steels which are used in general applications (such as mild steel), GOES is highly technical and difficult to produce, and it is used exclusively for Combination Registration No. C-2024/10/1202 Page 4 of 8 transformer cores. It is much costlier and produced by very limited number of steel mills across the world. 8. The NGOES is used in the manufacturing of electrical components, particularly in motors, generators, UPS, and inverters. Unlike GOES, it possesses uniform magnetic properties in all directions and is much cheaper (but costlier than general applications mild steel), making it ideal for applications where directional magnetism is not necessary. It is available in various thicknesses and conforms to industry standards to ensure quality and reliability in electrical applications. 9. It has been submitted that currently India relies significantly on imports to fulfil its demand for GOES. Share of imports in size of the market for GOES in India was more than 80% during calendar years 2021 and 2022, which has reduced to more than 60% during calendar year 2023. 10. It has been submitted that NLMK Group and the Target are the only two GOES manufacturers in India. Further, the primary input material (substrate) for GOES is currently not produced in India. As a result of the Proposed Combination, JSW Steel would acquire the ability to manufacture the substrate in India. This would help establish an integrated domestic production process to manufacture GOES. Further, the Target would not need to import the raw materials for the manufacture of GOES, thereby boosting its efficiency and competitiveness and also enabling it to meet the diverse price and performance demands of Indian customers. 11. It has been submitted that the Target is engaged in the business of manufacturing and sale of GOES in India. Jsquare, J2ES and JSW Steel, currently do not manufacture GOES and do not have any sales of GOES in India. J2ES is set to commence manufacturing and sale of GOES in India from 2027. Further, JFE Steel is engaged in sale of GOES in India, which is imported. Therefore, the activities/planned activities of the parties exhibit horizontal overlap. Combination Registration No. C-2024/10/1202 Page 5 of 8 12. It has been submitted that the Target is broadly engaged in the Electrical Steel segment in India (by way of manufacturing of GOES). Electrical steel, also known as silicon steel, is a type of special steel that differs from other types of steel (such as carbon steel) as the main additive element in electrical steel is silicon (instead of carbon), which inter alia gives it distinguishable magnetic and other properties which are useful, particularly in end uses such as manufacturing of motors and transformers. It is submitted that the relevant product market may be defined as the market for the sale of GOES, due to the following reasons: