Less than a year after acquiring a controlling stake in ACC, Swiss-major Holcim, has struck a deal with Gujarat Ambuja Cement Limited (GACL), the country's fourth largest cement company. Through the deal, which is considered as the biggest in the Indian cement industry and the most expensive in the global industry, Holcim has established a strong position in India that will help it to tower over its global competitors, Lafarge of France, Cemex of Mexico, and Italcementi of Italy. It has even surpassed its domestic rival Grasim, which was till recently the largest player with Ultratech Cement. Competitors, both national and international, will now be all the more hard-pressed to match with Holcim as it acquired a dominant position in a market of the highest growth potential. Post-acquisition, Holcim has achieved a market share of 25%, while Grasim along with sister concern Ultratech Cement controls, another 25%. With the deal resulting in two clear major players, who together control 50% of the market and several small players with modest market shares, experts feel that the industry is currently standing on the shoulders of giants who will support the industry's future growth and drive further consolidation. Further, with Holcim forking out a huge premium for GACL, industry experts regard the deal as an emphatic confirmation of the country's growth story.
On January 30th, Holcim picked up a 14.8% in GACL through the deal, which is estimated to be about Rs. 2100 cr. It has paid Rs. 105 per share of GACL, which includes a non-compete premium of Rs. 15 per share. In essence, Holcim has shelled out a huge $212 per ton of manufacturing capacity to GACL, more than double of what it has paid for ACC ($100). This is the highest ever paid price in the cement industry, globally. Anil Singhvi, Managing Director of GACL said: "This is almost twice what Holcim paid for ACC. I would go so far as to say that it is among the most expensive buyouts worldwide in the cement industry." He further adds, "I don't think anyone has yet got 15 million tons capacity valued at $3 bn." Holcim will also be making an open offer at Rs. 90 per share (from March 25 to April 13) to acquire an additional 20% stake in the company. In all, Holcim would be investing a little over $1 bn in the country.
There are several reasons compelling Holcim to pay such a huge, eye-popping premium for an Indian company. s say that with high potential for infrastructure development and construction boom, India is a very attractive market for global players. Currently, India has a manufacturing capacity of about 160 million ton per year, second largest in the world (China is the largest producer with around 1 billion ton per year production capacity); but the per capita consumption is one of the lowest in the world at 125 kg per year. With the government announcing huge infrastructure activities for the next few years, the prospects for the industry can only get better, and s are predicting a growth rate of 8-9% for the industry over the next few years. A player of international size, Holcim will have the first-mover advantage in such a market compared to other global giants.
Secondly, GACL enjoys better operating margins when compared with its industry peers and is the most cost-efficient company in the Indian cement industry. While its consumption of electricity was about 84 kw per ton of cement for the year ended June 2005, one of the lowest in the domestic industry, its fuel and power costs have fallen by 8% year-on-year for the December quarter 2005. GACL is the largest player in the western region and is well-situated to exploit the export opportunities with the Middle East. More importantly, the deal leaves little room for its global competitors to grow and outdo its presence in a market with bright growth prospects. The fact that the deal will enable Holcim to be the largest player in India also explains for the high premium. |
