There are currently three cement companies for sale in India: Lafarge (India), Reliance Cements and Jaiprakash Associates. If these transactions are completed, it will be an opportunity for the Indian cement industry to restructure, and the adjusted Indian cement industry will usher in rapid growth with the economic recovery.
On January 6, 2016, Lafarge (India) proposed to the Competition Commission of India (CCI) to sell its assets with an annual capacity of 11 million tons. Initially, as part of the Lafarge-Holcim merger agreement, CCI asked Lafarge to sell 5.2 million tons of its production capacity in Chhattisgarh and Jharkhand in eastern India. But the deal relies on the original buyer, Birla Group, to secure the limestone mining rights. In the end, the Birla group did not get its way. Lafarge India is now up for sale as a whole, including the transfer of mining rights. Of course, the Indian media has linked the deal to Ireland's CRH spending 8 billion euros in 2015.
The second is Reliance Cements, where Reliance Infrastructure reportedly held talks with potential purchasers on the Bombay Stock Exchange on January 11, 2016 to divest the company's cement assets, according to media reports. Reliance Cements in Maihar, Madhya Pradesh Kundanganj in Uttar Pradesh and Butibori in Maharashtra have three cement companies with a combined capacity of 5.8 million tonnes a year. On top of that, its Wani in Maharashtra is building a 5 million tonne a year cement plant. There were press reports in early 2015 that Reliance was up for sale. Unlike in the past, Reliance responded to local media that the company would be sold to Birla Group or some other private equity firm.
The last is Jaiprakash Ass'ociates, which has been trying to sell cement assets to repay its huge debts. Jaypee Cement, a subsidiary of Jaiprakash Associates, owns eight cement plants in India with a combined annual capacity of 11 million tonnes. In addition, it has six cement grinding plants with a cumulative annual capacity of 10.7 million tons. There are reports that Jaypee will be sold as a package, but Jaypee has actually sold its assets piecemeal, one or two at a time. The sale of the Bhilai Jaypee Cement to Shree Cement is expected to bear fruit in the near future. The rest were sold to Heidelberg Cement and UltraTech in 2015.
None of the companies in these deals is new, but the combined annual capacity of all the plants is 28 million tons, which accounts for 9% of India's total cement production capacity of 310 million tons. To some extent, it is possible for any company to become one of the largest cement companies in India immediately through these transactions.
Buyers should note that, according to a recent report by credit agency ICRA, demand will increase by a modest 4% in the 2015-2016 fiscal year before cement demand picks up in the future. This will continue the weak growth of demand in the first half of 2015, and even decline in March and April of 2015. ICRA expects cement capacity utilization to fall below 70% in FY16 from 77% in 2012. The 7% decline in capacity utilization is very close to the proportion of three cement enterprises accounting for 9% of India's total cement production capacity. Not surprisingly, buyers interested in India's cement assets are now selecting the target companies one by one.
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