India: Vicat, Heidelberg and Lafarge circle Sagar Cements

India: Vicat, Heidelberg and Lafarge circle Sagar Cements
Published: 09 June 2008

Just as Sagar Cements is poised to take the leap into the big league, the mini cement maker from Andhra Pradesh is drawing interest from France-based giants Vicat and Lafarge SA, and Germany’s HeidelbergCement AG. The three majors are circling for a strategic stake.

Sagar has a capacity to manufacture 600,000t of cement currently, but by early July commercial production will start from a new 2Mt capacity plant. Being a brownfield expansion, it cost much less, said a senior official from the company.

Lafarge officials recently came and inspected the facilities, but Sagar Cements demurred as it wants to get the new plant up and running before it enlists a strategic investor. The Sagar Cements board is slated to meet sometime in the last week of June to crystallise a more ambitious expansion plan. On the table is a 5.5Mt greenfield cement plant in Karnataka.

Already land acquisition for the project is going on. A decision to spin off the Karnataka plant into a separate entity will be considered at the board meeting. Also on the cards is a 1Mta plant in Africa. The official declined to name the country. In addition to this, the company has already announced plans to set up a cement plant in Oman with ranging up to 5Mt. It is expected to come up close to the Gulf coast enabling Sagar to export cement to even India, if required.

"To give you a sense of our future plans, you’ll have to wait until the board meeting gets over," the senior Sagar Cements official said.

But private equity firms such as Blackstone and Belgium’s Ackermans & van Haaren did not wait. They invested when the moorings were small.

Ackermans has a 14.32 per cent stake in Sagar Cements, acquired primarily from the market, while Blackstone acquired about seven per cent through the preferential warrants route and also bought some shares from the local market. The promoters also used the preferential warrants route to increase their stake to 47.3 per cent. The shares were quoted in the NSE on Friday at INR394.10, up 4.87 per cent. The brownfield expansion came at a time when the cement industry was witnessing a sellers market and bulk of the costs were met by internal accruals.

To fund the expansion, the promoters subscribed to a preferential warrants issue and increased their shareholding to 47 per cent. The Sagar promoters antecedents are common with that of the Rain Commodities group who also own a couple of million tonne cement plants and a petcoke plant.

The two groups at one point were co-promoters in the Priyadarshini group before they split in the 1990s. Both the groups have done well for themselves as they rode the up-cycle in the cement industry.

The Sagar Cements promoters are technocrats specialising in setting up cement plants etc, with Aarvee Consultancy having built many cement companies from scratch. The company like other cement companies in India, has enjoyed reasonably good margins with operating margins as high as 35-40 per cent.

"We are not complaining," the official said when quizzed about the margins and whether it can be sustained.