Indian cement cos valuation continues to spike

Indian cement cos valuation continues to spike
Published: 30 November 2010

The Indian cement industry, which had witnessed high value deals till 2008 and immediately a slowdown in M&A activity, is once again buzzing with talks of deals at high valuations.

Recently, little known Nagpur-headquartered cement company Murli Industries created headlines for negotiating its stake with multinational cement firms at high valuation.

According to banking sources, sellers are demanding an enterprise value (EV) of about $200-220 per tonne due to which many domestic players have backed out of potential deals. Foreign players eyeing the Indian cement market are negotiating at $160-180 per tonne to grab a share of the pie in the sector, where the long-term growth story is intact.

Shree Cement CMD HM Bangur said, “I don’t see the valuations coming down as foreign players are paying a premium to enter India, as they don’t want to get into uncertain situation by setting up a greenfield plant here.
All the major cement players are in India but yet the world’s eighth or tenth largest cement company may still want to enter India. Hence, they will be willing to acquire a company at a premium.”
Murli Cement, which had started production of its 3Mta  cement plant at Chandrapur in April 2010, is on a hunt for a buyer. Sources said global cement majors, including Cemex, Heidelberg Cement, Lafarge, Italcementi and CRH, are in talks to acquire the company. The promoters are expecting close to $200 a tonne, but the bids are understood to be in the range of $160-180 a tonne. The deal, if sealed at this price, would be very expensive, say experts.

Sagar Cement executive director S Sreekanth Reddy told FE, “A few high valued transactions in the past have increased the expectations of the promoters. In reality, things are different. Everything depends on the locations and how desperate the seller is to sell.”
If sources are to be believed, Gujarat Sidhee, Saurashtra Cement and Andhra Cement are also waiting for good valuation to get acquired. “Interestingly, despite an oversupply situation knocking at the door of the cement industry and fears of the worst yet to come, valuations have not dipped in the sector. We also don’t see valuations coming down as Indian companies are not bleeding so far,” said a cement analyst requesting anonymity.

As a result, Indian cement companies are staying away from acquisition and are currently concentrating on organic growth, where the replacement cost (cost of setting up a plant) is about $100-120 per tonne . Major cement manufacturers including ACC, Ambuja Cement and Grasim are scouting for acquisitions to maintain their current market share along with organic expansion.

Recently, Heidelberg Cements MD Ashish Guha said:  “We are in talks with various players who are in the play right now. But there is a mismatch in terms of valuation expectations and what we want to pay as fair value. So I don’t know how long it will take but we are definitely focused on acquisitions in India.”