Cement M&A activity dries up in India

It’s apparently becoming difficult for prospective buyers to strike takeover deals in the cement sector. Suitors, including some of the top names such as Zuari, Cemex and Dalmia’s, are moving around with bagful of cash, but no one seems to be interested. Yesterday’s distress sellers, including India Cements, Mangalam Cement and JK Corp, among others, have turned around, inducing their promoters to either drop sell-off plans or "out-price" themselves from the mergers & acquisition (M&A) market.

"We are keen to acquire at least one cement plant in south India to consolidate our position in the market. But suddenly it seems no one wants to sell," said a senior official with a south-based cement company. Cement prices are ruling at a 3-year high across India on the back of a double-digit demand growth, boosting the profitability of cement firms. This has greatly reduced incentives for a sell-off. In cases where promoters are willing to sell-off, the asking rates are too high.

"An uptrend in the cement cycle has greatly raised the price expectations of the promoters of cement companies. Many are now asking for amounts not warranted by economic realities," said Puneet Dalmia, vice-president, Dalmia Cement (Bharat).

Early last year, the Dalmia group, including Orissa-based OCL, had announced an aggressive growth, including acquisition. The company has, however, failed to close any deal and Dalmia blames it on sharp turnaround in the cement sector in the last financial year. Ditto for Zuari Cement, which is scouting for a second acquisition in South India, after it acquired Sri Vishnu Cement three years ago.

"At the present asking rate, it’s cheaper to go for a greenfield expansion than acquire an old plant," said a senior ACC official. In some cases, promoters are now asking as much as $150 (Rs 6,600) per tonne of the plant’s capacity to pass on the management control to the acquirer. This is almost 40 per cent higher than the amount paid by Holcim to acquire a stake in Gujarat Ambuja and Associated Cement Companies (ACC). This has also put a spanner into the entry plans of Cement multinationals such as Cemex of Mexico and Votorantim Cimentos of Brazil. Both have held various rounds of discussions with a number of standalone cement plants and regional players without any success so far.