With the acquisition of Larsen & Toubro’s (L&T) ready-mix concrete (RMC) business, Lafarge has established itself as a leader in the Indian RMC market. The deal, which is valued at Rs 1,480 crore ($349 m), will give Lafarge a 25% marketshare in the RMC business in the country. However, according to experts, the deal, that seems to be slightly overvalued, will become a benchmark for other RMC deals in the future.
“As this is a first in the RMC business where many assets are not available in this space, the deal cannot be compared,” said a Mumbai-based investment banker. On the other hand, experts believe that in the future, there will be a lot more activity in this sector.” Regional president, Asia and Middle East, Lafarge, Bradely Mulroney, said, “The RMC penetration in India is just 3-4% when compared with 75% in the US, 50% in Thailand and Malaysia and 15% in China. However, we see RMC business growing at the rate of 25% in India.”
The deal will be financed in excess of 50% through equity by the parent company Lafarge Group, and the remaining will be raised through debt locally. The acquisition will be accretive to Lafarge earnings per share from 2009. The company sees considerable profitability in relation to the acquired business, but declined to give specific numbers. Mulroney further said, “Lafarge had announced that it will invest 500 million euros each year from 2007-2010 in internal and external development. India forms a part of this investment.”
The French major beat Switzerland-based Holcim in the race to buy L&T Concrete. Though, Lafarge was among the earliest multinational companies to enter the fray in the cement business in India, it has been left behind by the likes of Swiss firm Holcim which acquired Gujarat Ambuja and ACC’s cement business. This acquisition, to an extent, will pitch Lafarge ahead in the fast growing RMC business.
The acquisition of L&T Concrete follows the recent start-up operation at Lafarge’s first green field RMC plant in Raipur, Chhattisgarh. With the cement production capacity of 5.5 million tonne in India, Lafarge has a strategic plan to more than double its presence in the next five years through greenfield projects in several regions. Though Lafarge has aggressive plans to grow organically, the company is open to acquisitions as well. Mulroney told FE, “It depends. We have a disciplined approach, very strict financial criteria and if there is an opportunity to meet such criteria then we will take it. If not, we are very happy with our organic internal development growth plan. And now we have the right platform to deliver that.”Going forward, Lafarge is also reported to be setting up 10 RMC plants in India each year, entailing an investment of up to $150 million.
One of Lafarge?s key strategic focuses today is innovation in concrete, which translates into an accelerated roll-out of value-added concrete products in both developed and emerging markets. Lafarge will be aiming to offer the Indian market its advanced and value-creative solutions for construction, the firm said. Lafarge entered the Indian market in 1999 with the acquisition of Tata Steel’s cement division, which was followed by the purchase of the Raymond Cement facility in 2001.