Cement maker Dalmia Bharat Enterprises is in talks to acquire newly built cement plants to expand in a market where some new entrants, facing subdued demand and rising costs, are seeking exit, its managing director said on Monday.
"Our firm view is that time to invest is when there is pessimism and recession. That’s not the time to run away. That’s the time to have conviction and courage," Puneet Dalmia told Reuters in an interview.
Dalmia said the company is betting on the long-term prospects for the sector and its partner private equity firm KKR, which holds 15 percent stake in its cement unit, shares its views on acquisition.
"KKR is fully behind us and they have said for the right transaction, a lot of capital is available. So the capital firepower is not a problem. I think the question is can we get a return on the capital," Dalmia said.
The company also plans to utilise its cash reserve of about INR2.5bn for the acquisition.
Acquisitions help consolidate the market and carry less risk compared with greenfield projects, Dalmia said, without giving details on the size or timeframe for acquisition.
It prefers a company based in south and eastern India, where its current plants are, but is also looking at other regions. About 10-20Mt of cement capacity is available for acquisition, he said.
India’s cement industry is facing a demand crunch as a rising interest rate, sluggish policy decisions and global uncertainties have slowed the infrastructure and real estate sectors, the key consumers of cement.
New plants have further pressured capacity utilisation and cement prices across the country, forcing some new entrants, who set out to build plants driven by demand optimism and cheap credit available in 2007-08, to seek exit, Dalmia said.
The sellers are now getting more realistic about price expectation, boosting chances for a deal, Dalmia said.
Dalmia Bharat Enterprises operates 13Mt cement plants at present. Its plans to add 5Mt of capacity has slowed down as demand is sluggish and it looks to acquire new capacity.
It plans to commission one plant of 2.5Mt in two years, but would take longer to complete the other plant.
Last December, it had said it will set up two plants of 2.5Mt each in two-and-a-half years.
Dalmia doesn’t see demand for cement reviving in the next 12-18 months and expects prices to remain stable for the next 3-6 months.
"In short term, there are headwinds and there is demand contraction in states which lack political leadership," Dalmia said, adding that overall cement demand was growing at about 3-4 per cent, much lower than the industry’s expectation of 10-12 per cent.