On January 30, when Swiss cement giant Holcim picked up a 14.8% stake in Gujarat Ambuja Cements Ltd (GACL) for Rs 2,100 crore, the move came as a surprise to many of the industry observers. The promoters, Sekhsaria-Neotia family, have always maintained that cement is their core business.
Despite market rumours on the possible sell-out of GACL stake by promoters, industry insiders seldom thought that the third largest player would do so. ‘‘It is only a logical step, after bringing in a foreign company to India and selling them their stake in ACC. In fact, GACL officials have gone on record a few times, saying that if they got a good price they would sell off the company,” says an industry analyst.
So, what does a ‘good price’ mean? In 2003, when Larsen & Toubro (L&T), sold its UltraTech Cement Company to the Aditya Birla group, the price paid on a per tonne basis was $80 per tonne capacity of UltraTech. Even last year when GACL sold its stake in ACC to Holcim, the price paid was $100 per tonne. But within a span of a year, when GACL hived off its stake to Holcim, the price per tonne had more than doubled to $212 per tonne. In fact, this is the highest price paid per tonne of cement globally, in a buy-out, according to industry experts.
So why should Holcim pay such a huge price for a company in India. It is the huge construction boom and the enormous scope for growth in the Indian market, point out analysts. With a total capacity of 152 million tonnes, India is the second largest producer of cement in the world, next only to China. But the per capita consumption is 125 kg per year and is one of the lowest in the world.
With a range of infrastructure activities announced by the government and the current real estate boom in the country, experts predict a minimum of 8-9% growth in the industry in the next few years.
The government has planned an investment of Rs 1,700 billion over the next seven years (2005-2012) for development of national highways, bypasses and roads connecting ports. This would provide a major fillip for cement consumption.
Apart from serving the needs of the domestic market, immense scope exists for Indian cement companies to export cement to the Gulf region, where a large number of construction activities are being undertaken.