Market valuations of cement companies in India are on the higher side, based on the enterprise value (EV) per tonne. The top four Indian cement companies are valued at US$150 and above, analysts say. "Companies like Holcim, Lafarge and HeidelbergCement, the top three players in the world with an EV/tonne around US$200, eye markets with 5-6 per cent growth rate. Cement sector in India already has 8-10 per cent growth. The demand-supply gap gives that kind of a valuation to the companies," said Rajan Kumar, an analyst with Networth Stock Broking. "EV/tonne is way ahead of replacement cost/tonne.
The Gujarat Ambuja-Holcim deal put the EV/tonne at US$200 per tonne. Considering the huge demand in the country, it makes sense to acquire existing plants, which is why the valuations are moving up, adds another Mumbai-based analyst.
"Moreover, India has not seen major capacity additions in the last four years," the analyst adds. India, being the world’s second largest cement market has a total capacity of 160 mtpa. The market is pegged at Rs 60,000 crore. "Average EV/tonne for Indian companies is at US$95. This is quite high when compared to global peers," says Japreet Singh Arora, an analyst with Angel Broking Ltd. "India is not just the largest market, it is also the fastest growing, and is expected to remain so for the coming few years," adds another analyst.