For instance, Hyderabad-based Penna Cement is on a hunt for a strategic partner and Mexicos Cemex is believed to be eyeing a stake in the company. Penna is understood to be looking at an EV of $150 per tonne, which only a foreign player would agree. Negotiations are going on, said a banker, on conditions anonymity.
Similarly, little known Nagpur headquartered Murli Cement, which started production of its 3 million tonne per annum (mtpa) cement plant in Chandrapur in April 2010, is also on a hunt for a buyer. If reports are to be believed, global cement majors including Heidelberg Cement, Lafarge, Italcementi and CRH are in talks to acquire the company. The promoters are expecting close to $200 a tonne. The bids are understood to be in the range of $160-180 million a tonne. The deal, if done at this price, would be very expensive, say experts.
In India, a number of opportunities are available in the
Southern market, but the valuations quoted are high, and only foreign players are willing to pay such a high price, said a Mumbai based analyst.
In April 2010, French cement maker Vicat SA bought a 51% stake in Hyderabads Bharathi Cement Corp. Ltd, promoted by YS Jagan Mohan Reddy. The deal price was, however, not disclosed but industry sources say it was at an enterprise value (EV)/tonne of about $135-140 per tonne, higher than the replacement cost ($90-100/tonne).
In June 2008, the industry saw its last M&A activity, when Vicat bought Hyderabad-based Sagar Cements at $100 a tonne, one of the lowest valuations since Holcim made its entry in the country in 2005. Before this, the last expensive deal the industry saw was in May 2008, where Lafarge bought L&T Concretes RMC business for $349 million (Rs 1,480 crore).
Recently, private equity fund KKR invested Rs 750 crore in a wholly-owned subsidiary of Dalmia Cement and Jaypee cement is reported to be buying a controlling stake in Pune based Zawar Cements defunct grinding unit at Wadi, in Karnatakas Gulbarga district.
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 MNCs, CRH and Vicat, entered India by acquiring stake in My Home Industries ($462 million) and Sagar Cement (Rs 70 crore) respectively. It is understood that Gujarat Sidhee, Saurashtra Cement and Andhra Cement are also waiting for good valuation to get acquired.
Except the southern region, cement companies pan-India are doing good. Indian companies will prefer a brownfield or a green field expansion rather than paying premium for acquisition. A foreign player who does not have a presence here may go for such acquisition. Of all the large global players, only Cemex is not present in India," said a Mumbai based analyst on conditions of anonymity.