Grasim expected to announce decision on Ultratech today.
Grasim is expected to announce the decision to merge its cement businesses with group company Ultra Tech Cement tomorrow, to become the country’s largest standalone cement company with a combined capacity of 43 million tonnes.
Industry leaders and analysts are not expecting similar merger moves from the other big cement players. For example, Swiss cement major Holcim has operations in India under two companies, ACC and Ambuja Cements, with a combined yearly capacity of 41 mt. But industry sources ruled out a merger of the two companies in the near future.
Paul Hugentobler, member of the executive committee of Holcim and deputy chairman in both ACC and Ambuja, had earlier said, “We have no plans to merge the two entities, though, in our global balance sheet, we are consolidating our Indian operations.”
“Compared to Grasim, ACC and Ambuja are very powerful brands. Except in the North, the two brands do not even compete with each other. It won’t be wise to merge these two companies soon,” analysts said.
By contrast, Ultra Tech is the only big cement brand of the Birlas. Industry leaders said the Grasim-UltraTech deal is more of an internal consolidation, which will not change the equations for others, as production and capacity will remain the same. “Both companies were under one group, anyway, so it will not make any difference to the industry,” said the managing director of a leading maker.
Analysts said valuations were currently still hovering around or below the replacement cost, of $100 a tonne. They added that if the deal between Grasim and UltraTech turned out to be below $100 a tonne, it will not be a good signal for the industry, and further mergers or acquisitions will take a relatively longer time.
The 225-mt cement industry has over 50 players. However, almost half the current capacity is being controlled by the top players, namely Holcim, Birlas, India Cement, Shree Cement and Jaypee Associates.
It was in June 2008 that the industry saw its last M&A activity, when French company Vicat bought Hyderabad-based Sagar Cements at $100 a tonne, one of the lowest valuations in recent years since Holcim made its entry in the country in 2005.
Hari Mohan Bangur, chairman and managing director of Shree Cement, said: “Consolidation in the industry is not expected for at least another one or two years. Bad times for the industry have not yet come. There should not be any threat for the smaller cement makers.”
According to industry players, a valuation of $150 a tonne or above could be an attractive price for sellers. “Earlier deals have set a benchmark of around $150 a tonne,” said Shailendra Chouksey, wholetime director of JK Lakshmi Cement.
Industry players say there will not be any substantial fall in profits despite the supply glut in the coming quarters.
