Global building materials major LafargeHolcim has decided to sell its stake in Lafarge India. “LafargeHolcim today announced that it is considering a divestment of its interest in Lafarge India with an annual cement capacity of around 11 million tonnes,” a Lafarge India statement said, adding that the divestment would require the approval of the Competition Commission of India (CCI) as an alternate remedy for the merger of the group’s legacy companies.
This comes two days after Lafarge India called off its Rs 5,000-crore deal to sell its two eastern India cement units (at Jojobera and Sonadih, with a combined capacity of 5 mtpa), and mining rights in the area, to Birla Corporation Limited (BCL), the flagship company of the MP Birla group.
LafargeHolcim, the entity formed after the global merger of Lafarge and Holcim in 2014, had agreed to make the sale to win approval from India’s anti-trust regulator to merge the Indian assets of the erstwhile companies. CCI’s conditional approval was subject to Lafarge India divesting 5.15 mtpa of its cement capacity in eastern India.
Mining rights
However, India’s new Mines and Minerals Development Act (2015) only permits the transfer of mining rights if the entire corporate entity is sold. The deal with BCL was subject to transfer of mining rights as well.
The company’s statement said, “LafargeHolcim is no longer in discussion with BCL for the sale of the Jojobera and Sonadih cement plants in Eastern India that was announced earlier,” adding that due to the current regulatory issues relating to the transfer of mining rights captive and critical to the two plants, LafargeHolcim was obliged to submit an alternate remedy to the CCI to ensure compliance with the order.
LafargeHolcim’s alternate remedy — to sell its entire stake in Lafarge India — is now under consideration by the CCI. “The group remains in dialogue with the CCI and will communicate any further updates to the divestment process in India in due time,” the company statement concluded.
BCL is contemplating legal action. In a filing to the exchanges, the company said, “Lafarge India has since informed their inability to proceed with the agreement. The company has since discussed the matter with its legal advisors and has decided not to accept their contention and is in the process of taking appropriate legal measures in consultation with lawyers”.
Growth ambitions
BCL is also taking other steps towards its growth ambitions.
On Thursday, BCL signed a share purchase agreement with the Anil Ambani-led Reliance Infrastructure Limited (RInfra), to buy RInfra’s subsidiary, Reliance Cement Company Private Limited, for an enterprise value of Rs 4,800 crore.
SBI Capital Markets Limited acted as the financial advisors to RInfra for this transaction.
An RInfra statement said, “Under this transaction, Birla Corporation Limited will acquire the 100 per cent shareholding of RInfra in RCCPL,” adding that the transaction is subject to approval of the Competition Commission of India (CCI) and other applicable regulatory approvals.
RCCPL has an integrated cement capacity of 5.08 mtpa at Maihar, Madhya Pradesh, and Kundanganj, Uttar Pradesh, and a grinding unit of 0.5 mtpa at Butibori, Maharashtra. Taken with BCL’s current capacity of 10 mtpa over its units in Rajasthan, Madhya Pradesh, Uttar Pradesh and West Bengal, the acquisition will make the combined entity one of the leading cement-makers in eastern India, as well as strengthen its presence in high-growth central India. BCL’s enhanced capacity will be over 15 mtpa.
Commenting on the deal, Harsh Lodha, chairman, Birla Corp said, “I am very pleased to announce this very important transaction in Birla Corp’s history. Reliance Cements fits our plans to grow the business profitability very well and offers lucrative prospects for creating synergies with existing operations. It provides an excellent platform for increasing our footprint in existing as well as new geographies.”
What this means for the industry
The two announcements are likely to trigger further consolidation in the 400 mtpa (million tonnes per annum) Indian cement industry, which is facing margins pressure due to muted demand.
Kumar Mangalam Birla’s Aditya Birla Group, with capacities of 72 mtpa, is India’s largest cement-maker, closely followed by the combined LafargeHolcim total capacity. Both will fight to reach 100 mtpa capacity through acquisitions and organic growth, cement experts say.
LafargeHolcim may be the largest cement-maker globally, but, after divesting itself of Lafarge India’s 11 mtpa of assets, it will probably have to content itself with the second position in India.
The scramble for the third spot will be between Shree cements, India Cements, Ramco Cements and Dalmiya Cements, all with capacities currently under 25 mtpa capacities.
Investment advisor SP Tulsian believes it is the right time to be in the cement industry. “The dedicated freight corridors, 10,000 km of road projects, smart cities and infra push by the government will soon see spike in cement demand. Rs 4,800 crore, or $140 a tonne, is a good valuation. There is further scope of M&A in the cement industry.”
