Apr 25, 2000|
Cement sector valuations look up!
The cement sector is once again in the news. No, not for the valuations accorded to it by the stock markets. But for the price being paid to acquire cement companies in India.
Just to put the performance of the cement sector in perspective, production grew 15% to touch 94 million tonnes in FY00 and demand grew 14.7% at 93.8 million tonnes. It is anticipated that by 2002, demand in the cement sector will exceed supply. The interest shown by international cement majors – Lafarge, Cemex, Holderbank and Ciments Francais, seems to be more than justified on these grounds.
The latest in a series of acquisitions that have taken place in the cement sector is rumoured to be a deal between Zuari Industries and Ciments Francais. Zuari is said to be hiving off its 1.7 million tonne cement plant to an independent subsidiary. It will then offer a 50% stake in the subsidiary to Ciments Francais for Rs 4 – 5 bn. This puts the valuation of the cement plant at Rs 4,700 – Rs 5,800 per tonne! Compare this to the Rs 2,500 per tonne paid by Gujarat Ambuja for acquiring a 51% (controlling) stake in DLF Cements (capacity - 1.3 million tonnes). This indicates an appreciation of over 100% in the last four months alone (of course factors like location and the condition of the plant need to be considered while valuing them).
Valuations in the cement sector are definitely looking up. However, valuations in the stock markets continue to languish. With the dot.com fever on the wane, will investors see an investment opportunity in this sector? With an improvement in the demand supply scenario, better pricing environment and increasing consolidation in the sector, cement stocks could offer an interesting investment opportunity.
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