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  1. Heidelberg likely to acquire Lafarge’s eastern India units

Heidelberg likely to acquire Lafarge’s eastern India units

German cement major Heidelberg, which is looking to ramp up its capacity in the country through acquisitions, is understood to have placed the highest bid for acquiring the units of Lafarge in eastern India.

By: | Published: July 23, 2015 1:22 AM
lafarge acquisition

Lafarge’s entry into India was marked with its acquisition of Tata Steel’s cement business in 1999, followed by the purchase of Raymond’s cement units in 2001 and the takeover of L&T’s concrete business in 2008. (Reuters)

German cement major Heidelberg, which is looking to ramp up its capacity in the country through acquisitions, is understood to have placed the highest bid for acquiring the units of Lafarge in eastern India, valuing the assets at around Rs 6,000 crore, reports Neha Bothra in Mumbai. According to sources, the other two bidders in the race are MP Birla Group’s Birla Corporation which has tied up with a PE firm followed by Irish cement company CRH. Baring Private Equity Asia is likely to have bid in partnership with Birla Corporation, but this could not be independently verified, sources said. When contacted, Heidelberg Cement declined to comment on the development stating, “As a general company policy, we do not comment on rumours or market speculations.” Queries to Lafarge Holcim, Birla Corporation and CRH  did not elicit any response till the time of going to the press.

After the April 2014 global merger between France’s Lafarge and Switzerland’s Holcim, Lafarge India needs to divest some of its units in eastern India as per the Competition Commission of India’s directions as otherwise the combined entity would command a monopolistic market share in the region – 37% of the total capacity in eastern region and 79% in Jharkhand. The CCI approval to the merger within the country would come once the divestment is through.

Sources said final bids were submitted by July 20. “The deal is being managed by Heidelberg’s Singapore team and the company’s representatives from Germany were in India on Wednesday to possibly firm up final contours of the deal,” said a person with knowledge of the development. The deal includes sale of Lafarge’s grinding unit at Jojobera in Jharkhand and an integrated cement plant at Sonadih in Chhattisgarh — that have a combined capacity of 5.15 million tonnes per annum (mtpa).

The deal is likely to include the sale of Lafarge India’s Concreto brand along with the cement units in eastern India, according to sources. In fact, trade channels say, Lafarge’s Concreto brand is the highest and costliest selling brand in Bihar — commanding a premium of around R17 per bag.

Sources said Heidelberg Cement is paying a premium for the quality of assets and the potential to maximise profitability. For example, according to sources, Lafarge’s Jojobera and Sonadih cement units with the combined capacity of 5.15 mtpa have an Ebitda per tonne in the bracket of Rs 1,600 to Rs 1,800. This is considered to be the highest in the industry, and nearly double the Ebitda per tonne of Heidelberg’s existing cement units with a total capacity of 5.4 mtpa in India.

The likely acquisition would enable Heidelberg to double its existing capacity from 5.4 mtpa to over 10.5 mtpa. Heidelberg Cement entered India in 2006, through a 50:50 joint venture in Indorama Cement and acquired a majority stake in Mysore Cement. Heidelberg Cement India has plants in Madhya Pradesh (MP), Uttar Pradesh (UP) and Karnataka. Its main markets include MP, UP, Bihar, Haryana and Uttarkhand.

Lafarge’s entry into India was marked with its acquisition of Tata Steel’s cement business in 1999, followed by the purchase of Raymond’s cement units in 2001 and the takeover of L&T’s concrete business in 2008. Lafarge India’s total cement capacity is around 11 mtpa, with cement units in Chhattisgarh, Jharkhand, Rajasthan, Haryana and West Bengal. Lafarge India is counted amongst the leading cement players in Eastern and Central India. It owns leading brands like Concreto and Durgaguard.

“Given increasing challenges in setting up new plants and expectations of a demand up-cycle, we see acquisitions as the preferred expansion route for large companies. This gives companies immediate access to markets, compared to a gestation period of five to seven years for new plants, as well as to surplus land and quality limestone reserves,” observes a recent JP Morgan report.

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