In an elite club

Indian cement companies rub shoulders with high value global enterprises.

The mounting enterprise values of the country's cement players in the last two years are indicative of the fact that Indian cement companies have now entered the category of the most highly valued enterprises across the globe.

The latest deal which came up in the form of Holcim raising its stake in Gujarat Ambuja Cement (GACL) by 3.7 per cent in the secondary market, put the enterprise valuation (EV) at over $283 per tonne.

According to the closing price on November 16, Grasim Industries tops the list with EV/tonne of a whopping $408 while Shree Cement stands second with a valuation of $307.

Enterprise value, theoritically, represents the entire cost of a company if someone wants to take it over. It is calculated by adding a corporation's market capitalisation, preferred stock and outstanding debt, and then subtracting the cash and cash equivalents.

"Now it is not that a company's assets decide its enterprise value. Rather, it is the infrastructure expectation and future profitability of the firm that plays a decisive role in calculating the valuations," said J Radhakrishan, research analyst with India Infoline.

It is the earning expectations, better profit margins and feasibility because of which foreign firms are not hesitating to infuse larger investments, he added.

This upswing is here to stay. According to the research head of a Mumbai-based foreign brokerage, "The demand is growing strongly and so far there is no major capacity addition, which is putting upward pressure on cement prices. The cement demand is growing at 10 per cent annually while capacity addition is happening at 5-6 per cent."

The demand-supply gap is expected to continue for the next few years.

Not for sale

With foreign cement firms ready to pay huge sums of money in order to take hold of Indian companies, domestic players seem keen not to be sold off the way intruders want it.

French cement major, the Vicat Group, has shown interest in taking stake in the Hyderabad-based unlisted company MyHome Cement Industries. However, so far the company has not bowed down to the offer.

"They (Vicat group) have approached us and proposed an EV/tonne of $165 which was stretched up to $200 per tonne," said a senior executive of MyHome Cement Industries.

He added, "We are not going to sell like this," signalling that the company is seeking a higher EV.

MyHome has an annual capacity of 3 million tonnes. It has its manufacturing unit in Mellacheruvu in Nalgonda district.

The company has announced expansion plans that will take its clinker capacity to 2.4 million tonnes and cement production to around 3.3 million tonnes.

Emerging hub

When the Gagal plant of ACC was commissioned in March 1984 in Himachal Pradesh, few could envisage that the mountainous state would attract other cement majors as well.

Though it has had little production capacity so far, of late, with the kind of importance cement manufacturers are attaching to Himachal, the state seems set to emerge as the new cement hub in the country.

It is expected that 75 million tonnes of fresh capacity will be added to the Indian cement industry by FY2009.

Himachal Pradesh will attract up to 12 million tonnes "" 16 per cent of the new capacity. Once the new capacity becomes operational, the total cement producing capacity of the state will catapult to more than 16 mtpa from the existing 4 mtpa "" a jump of 400 per cent.

Jaypee Associates (4.2 mt), Lafarge (3 mt), India Cements (1.4 mt) and Grasim are the new players in the process of setting up plants in the state.

"Huge limestone deposits in Himachal Pradesh and the extension of tax benefits and subsidy in power are making the state a very attractive destination for cement companies," said R G Bagla, group executive president, J K Cement.

"Himachal has sufficient limestone reserves. Also, there are some steel plants located in the state, so there is no constraint on the raw material side," said Sudhir K Nair, head, Crisil Research.

In the northern region, Himachal will be next only to Rajasthan where the expected fresh addition in capacity is in the range of 16-17 million tonnes.