The Indian cement industry, which has seen some recent acquisitions by global players despite oversupply fears, could see the momentum continue in the coming months.
This is thanks largely to the enterprise value (per tonne) these companies command coupled with the prospects of higher spend by the Centre on infrastructure-related projects.
French cement company Vicat SA in April bought 51 per cent in Bharathi Cement promoted by Andhra Pradesh Member of Parliament Mr Y.S. Jagan Mohan Reddy, for an enterprise value (EV)/tonne of about $135-140. This was higher than the replacement cost ($90-100/tonne).
The valuations of cement companies have now increased substantially since Vicat SA bought Hyderabad-based Sagar Cement at an EV of $100 a tonne in 2008.
Private equity investor, Kohlberg Kravis Roberts & Co LP in May agreed to invest up to Rs 750 crore in Dalmia Cement’s unlisted arm, which will, post-restructuring, house its nine-million-tonne cement manufacturing capacity, its stake in OCL India (5.3 mtpa capacity) along with greenfield projects of 10 mt across the country.
“Many midsized players, especially in the southern region, have put their assets on the block,” said a merchant banker. This was a result of rising input costs and constraints in passing on the incremental cost to end-users following a fall in demand. However, some of the deals have not gone through as the sellers have sought 75 to 125 per cent premium over their replacement cost.
W`hile domestic companies are clearly unwilling to pay such a huge premium, multinationals keen on a foothold in India market are ‘more than eager’ to consider these deals, an analyst said.
For one thing, there is a great sense of price stability with the top five – ACC, Ambuja Cement, Samruddhi Cement, UltraTech Cement and Shree Cement – accounting for 54 per cent of capacity.
Source: Business Line