The acquisition of Shree Digvijay Cement Company (SDCC) by Portuguese cement maker Cimpor has put the enterprise value (EV) of the company at $162 a tonne, the second expensive purchase by a foreign cement firm. |
The most expensive acquisition is Ambuja Cement for which Swiss giant Holcim paid $200 a tonne when it bought 13.8 per cent from the Seksharia-Neotia combine last year. |
The SDCC acquisition by Cimpor exceeded the valuation put by German cement maker Heidelberg on Mysore Cement for take over. |
Heidelberg paid an EV of $117 a tonne for the transaction last year. With the country's cement industry booming, several foreign firms are showing interest and has led to domestic cement firms fetching good valuations. |
"It was one of the best offers we got," said D Muthukumaran, vice-president, strategic initiative, Aditya Birla Group. |
The list of such deals includes Gujarat Ambuja's acquisition of Modi Cement ($44 a tonne), India Cement's acquisition of Rasi Cement ($68), Italcementi's acquisition of Shri Visnu Cement ($80) and Grasim's acquisition of L&T Cement ($80). |
Analysts said SDCC managed to get such a handsome valuation partly due to its jetty. The valuation of the jetty could not be immediately ascertained. |
However, Kumar Mangalam Birla had said at the time of taking over SDCC from the Bangurs in 1998 that the jetty should be valued at Rs 100 crore. |
"Also, the foreign company had to pay entry premium to get into the burgeoning domestic cement market," said an analyst working with a foreign brokerage. |
SDCC last year posted net profit of Rs 54 crore on total sales of Rs 289 crore. The deal corresponds to 11.4 times of the estimated EBITDA for financial year 2008. |
"With the acquisition, the Cimpor group gains a footing into the world's second largest cement market with a strong growth potential. The market has been growing at 9 per cent over the last three years," Cimpor said in a statement. |
However, analysts said Cimpor has its work cut out to establish SDCC as a market leader. "The biggest disadvantage with SDCC is that it does not have enough limestone reserves," analysts added. |