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Reliance Infrastructure, part of the Anil Ambani-led Reliance Group, has decided to monetise its cement business to fund the acquisition of Pipavav Defence and Offshore Engineering, which it is acquiring for Rs 2,082 crore.
Reliance Cement, a fully-owned subsidiary of Reliance Infra, is in talks with two international cement companies, Heidelberg and Italcementi, and has offered a 50 per cent stake in the company. The prospective joint venture partner will also fund the company's cement capacity expansion - estimated to rise from five million tonnes per annum (mtpa) to 15 mtpa by 2018.
Details of the valuation of the possible deal aren't known. When contacted, a Reliance Infrastructure spokesperson declined to comment on the issue.
India's cement sector is dominated by players such as Holcim-Lafarge and Ultratech, which have overall capacities of about 60 mtpa and together control about 40 per cent of the overall installed capacity in the country. Those such as Italcementi, Heidelberg, Vicat and CRH are smaller companies, with capacities ranging from 1.3 mtpa to eight mtpa. Buying stake in Reliance Cement will help these companies increase capacity and reach across the country.
An emailed questionnaire to the spokespersons of Heidelberg and Italcementi groups did not elicit any response till the time of going to print.
Heidelberg has operations in Damoh (Madhya Pradesh), Jhansi (Uttar Pradesh) and Ammasandra (Karnataka). The Italcementi group, the fifth-largest cement maker in the world, entered India through Zuari Cement.
As an avenue for growth, Reliance Infrastructure has decided to focus on defence, rather than cement. Reliance Infrastructure, together with its wholly-owned subsidiary Reliance Defence Systems, has agreed to acquire 18 per cent stake in Pipavav Defence from its promoters for Rs 819 crore, at Rs 63 a share. It plans to leverage a Rs 1,20,000-crore order of the company through the next five years.
Reliance Infra will also make a mandatory open offer to acquire 26 per cent stake from the public shareholders of the company for Rs 1,263.3 crore, at Rs 66 a share, in line with the Securities and Exchange Board of India's takeover regulations.
Reliance Cement has a five mtpa plant in Maihar (Madhya Pradesh). As part of its expansion plan, it is setting up another five-mtpa plant in Maharashtra, which is set to be operational by 2017.
The company is also planning another plant with a capacity of five mtpa, to be operational by 2018. For that, the company is considering two options - a second line in Madhya Pradesh or Karnataka for the southern market or a plant in Rajasthan to cater to the market in the North.
