UAE producers likely acquisition targets?

UAE producers likely acquisition targets?
Published: 05 December 2011

UAE cement manufacturers are likely acquisition targets as prices and demand continue to decline, a report by Global Investment House (GIH) says.

Net profit for UAE cement companies declined 86.6 per cent to US$10.9m in the first nine months of the year, according to the GIH report.

The slowdown in the property and construction sector continues to affect cement makers, driving down prices at a time when production capacity has increased throughout the region.

Gross margins for UAE cement companies are at an all-time low of 4.8 per cent, as production costs escalated nine per cent, Global’s research found.

"UAE seems to show that it hasn’t reached the bottom yet as margins and profitability ratios continue to decline and continue to post new low levels," Global reported.

But the depressed market also makes the UAE attractive for potential mergers and acquisitions.

"Various regional companies have been acquiring companies in [the] UAE because they are the ones who have been affected the most and are available at quite cheap valuations," the report said.

Last year, Raysut Cement, based in Oman, acquired Pioneer Cement for US$175m and the India-based UltraTech Cement paid US$380m for a controlling stake in ETA Star Cement.

"We believe there are many such M&A [mergers and acquisitions] targets available in the region and expect these activities to continue in the coming years," Global said.

Omani companies are particularly interested in buying UAE cement manufacturers to benefit from the lower prices, it added.

"The infrastructure and construction activity is on a full swing in Oman and starting to set up a plant would take away 12 to 15 months of active demand period," the report said.