Mumbai: The country's cement industry, which
had witnessed higher valuation transactions in 2008, has now become
cautious on acquisitions at the current valuations.
However, major cement manufacturers including ACC
Ltd, Ambuja Cement and Grasim are scouting for acquisitions to maintain
their current market share along with organic expansion.
According to experts, firms are not willing to
sell at low valuations due to high expectations. At present, the target
companies are available at a premium which Indian firms with sizeable
position will not go for it. Currently, brownfield or greenfield
expansion in the sector will cost about $100-120 per tonne whereas
firms are demanding more than $150 per tonne.
According to an ICICI Securities report, Ambuja
Cement Ltd is scouting for acquisition in the range of 1.5 to 2 million
tonne capacity cement plants, but valuations remain the key hindrance
for the company. ACC MD Sumit Banerjee told FE, "There are not too many
targets currently. Also we don't see too many acquisition deals in the
next one or two years. People have experienced good returns in the last
few years and they can hold on as they clearly see 2013 as a good
market."
In January, ACC Ltd acquired 100% stake in Encore
Cements and Additives Pvt Ltd and will buy 45% stake in Asian Cement
and Concrete, which operates a 3,00,000 tonne cement grinding unit at
Himachal Pradesh. The value of the deals was not disclosed.
"Both the buys are small but interesting from the
point of view of distribution cost, logistic cost and market rational,"
Banerjee said. Aditya Birla Group's Grasim Industries needs to add 25
million tonne of capacity to maintain its 20% market share. This will
require an investment of Rs 15,000 crore over 5 years period. Grasim
Industries CFO Adesh Gupta had indicated that the company is evaluating
the inorganic route also.
In 2006, the cement industry saw seven high
valuation deals, whereas in 2007, the number of deals reduced to two.
In 2008, there were three deals, where two MNC's CRH and Vicat entered
India by acquiring stake in My Home Industries ($462 mn) and Sagar
Cement (Rs 70 crore) respectively. In RMC space Lafarge acquired
L&T concrete's RMC business ($349 mn) that pitched Lafarge ahead in
the fast growing RMC business.
Experts believe players like Reliance, Holcim,
Lafarge are waiting for an appropriate time to consolidate. It is also
under stood that Gujarat Sidhee, Saurashtra Cement,...