Cemex of Mexico in race for Zuari's cement unit - Views on News from Equitymaster

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Cemex of Mexico in race for Zuari's cement unit

Jan 11, 2000

The race for dominating the Indian cement industry is hotting up. After Lafarge (France) and Holderbank (Switzerland), it is now the turn of Cemex SA DE CV Mexico, the third largest cement producer in the world, to bid for a presence in the Indian cement industry. The cement unit in question has a capacity of 1.7 million tonnes and belongs to Zuari Industries. The newspaper reports have stated that apart from Cemex, Lafarge, Holderbank and a south based cement company are also in fray for the cement plant that is expected to fetch Rs 7.5 bn. At this price, the deal would be valued at Rs 4,400 per tonne. This compares with the Rs 2,500 per tonne paid by Gujarat Ambuja Cements for acquiring a stake in DLF Cements, a loss making company.

The rush to gain a foothold in the Indian cement industry is understandable. India today is on the threshold of a construction boom that will be led by spending on infrastructure. Thus, the growth prospects that India offers are very attractive as compared to those of other markets. The interest in the domestic markets is also buoyed by the fact that India is like to witness a supply gap in the coming two years as demand growth leads the growth in capacity additions. Already, capacity utilisation levels at plants have increased significantly over the last one year. The demand supply gap will improve the prospects of price realisations in coming months.

The domestic players have responded aggressively to the threat of international majors entering the markets. The most aggressive of these companies has been Gujarat Ambuja Cements that has picked up stakes in DLF Cements (1.3 million tonnes) and Associated Cement Companies (over 11 million tonnes), one of India's largest cement companies.

The Indian cement industry is likely to undergo a dramatic change in the coming months as larger players look at acquiring capacities. This will put smaller cement companies (1 - million tonnes capacity) in the limelight. The price per tonne of cement capacity could also witness an upward trend.


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