Equity Watch

Consolidation times in Indian Cement Industry: Watch ANDHRA CEMENT

Today Mysore Cement, a 2 million tonne cement plant promoted by SK Birla has been taken over by Heidelberg. It has bagged an enterprise value of US $125 per tonne of capacity. 

Consolidation in Indian Cement Industry is on since last 10 years.In 1996,KK BIRLA GROUP of which I was a part then, was approached by Lafarge to take a controlling stake in Zuari Cement (a subsidiary of Zuari Industries promoted by KK Birla ).However at that point of time we were looking for a strategic investor and had no intention of giving up management control. In 1999,we did find a gullible investor in Italcementi who was happy with 50% stake in Zuari Cement. However in 2006 Zuari Cement was sold to Italcementi at an enterprise value of US$135 per tonne. Between 2000 and 2006,other Cement majors like Holciam,and the latest entrant Cemex have tried to consolidate their positions by taking over existing cement plants. It is not surprising that none of the Cement majors have tried to set up a greenfield cement plant as prospecting for lime stone reserves takes a long time and after the proven reserves have been established,getting the mining rights ,railway siding etc. can take upto 7-8 years,with only 25% chance of striking enough lime stone reserves to cater to the economic life of the plant.In view of this acquitition of existing Indian Cement companies by Cement majors is going to pick up momentum in the next few years.

Some of the cement companies that are on the radar of cement majors are:

  1. Andhra Cement
  2. Dalmia Cement
  3. India Cement
  4. Mangalam Cement
  5. Kakatiya  Cement

Andhra Cement is a 68 years old company belonging to GP GOENKA group.Its capacity is being expanded from 1.5 million tonnes to 3 million tonnes. At US $ 125 per tonne its net enterprise value is expected to be US $ 350 million excluding the loans.Its equity capital after capital restructuring and one time settlement (OTS) is expected to be Rs. 85 crore, or 85 million shares giving value of approximately US$ 4 or Rs.180 per share.Share is available @ Rs. 30 and is listed on BSE.

I will cover the other companies in my next post.

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