Cementing a deal
Holcim’s moves are perfectly timed
Holcim’s move to increase its stake in Gujarat Ambuja Cements Ltd (GACL) by acquiring another 3.7% speaks of the aggression with which the Zurich-based global cement major looks at the Indian market. Having already made two important acquisitions over the past two years – by way of stake purchases in ACC and GACL—Holcim is clearly firming its foothold in the Indian cement sector. Holcim’s entry into India was well timed, and the sector has been on an upswing since 2004-05. Any cement player of global scale will seek to capitalise on the Indian market, which is otherwise fragmented and regionalised. In fact, such has been the upturn in the cement sector, that even smaller regional players like India Cement have seen a strong turnaround in fortunes. From Holcim’s point of view, the math is simple: its access to the ACC and GACL combine gives it a 33.4 million tonne capacity base, just ahead of its nearest rival, the Aditya Birla Group, which has around 31 million tonne. Consider how valuable the cement sector has become: when Holcim acquired the ACC stake, it paid around $100 per tonne of capacity in 2005. According to a September report by Edelweiss, the current valuation is over $200 a tonne, more than Holcim’s own, at $174 a tonne.
No surprise, then, that Holcim was willing to fork out Rs 690 crore for the 3.7% additional stake, which it bought from the promoters, the Sekhsaria-Neotia combine. However, the gameplan for Holcim, going forward, will have to be to consolidate this stake in GACL further. From the existing 18.7%, the holding is expected to stand at close to 27% after GACL’s merger with Ambuja Cement Eastern Ltd is completed a few weeks from now. Eventually, the global major wants its stake in GACL to mirror that of ACC and has already said it is willing to invest $1 billion in GACL. With the sector booming and GACL’s management making the most of it, Holcim sees the perfect opportunity. Compare this with the other global major, Lafarge, which is far behind in capacity in India and the Swiss major’s India gameplan becomes abundantly clear. From the Sekhsaria-Neotia point of view, the deal is a win-win, and quite naturally so. Having built an institution like GACL, the combine sees this as the ideal time to unlock the value of its holdings, and invest in other businesses. The erstwhile promoters now retain around 4% in GACL, much like a portfolio investment. As the valuations soar, it will make sense for the Sekhsaria-Neotia duo to exit the company entirely.
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