What does Century gain by selling its cement plant? - Views on News from Equitymaster

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  • May 15, 2000 - What does Century gain by selling its cement plant?

What does Century gain by selling its cement plant?

May 15, 2000

At Rs 3,200 per tonne (thatís what Lafarge paid Raymond for the latterís 2.4 million tonne cement plant), Century gains Rs 4.8 bn. Thatís approximately 30% of the company's total debt in FY99. Given an interest rate of 12%, Centuryís bottomline would rise by Rs 576 m. Assuming, of course, that the company will use the proceeds to repay debt. There is one other factor that weighs in favour of Century. Getting out at this point of time from the western market reduces its exposure to a drought-hit region of the country. Moreover, with competitors like Gujarat Ambuja and Larsen & Toubro (L&T) dominating the western market, the unitís profitability would anyway have been under pressure (Ambuja and L&T are among the most efficient cement companies in India). The sale would probably cut down the losses of Centuryís cement division.

The sale raises one other question. Does Century plan to be present in the cement business at all? If it does not then selling its cement assets (approximately 6 million tonnes of cement capacity) piece by piece may not be the best approach. A one-time sell off could get it a better price, consuming relatively lesser time and effort. On the other hand if the company does plan to be in this business, then a presence in the Western region is a must (probably the most highly developed in the country). The company needs to come clean on its decision to sell off its cement assets.

It has been reported that Blue Circle, a UK based cement giant, is the likely acquirer of the cement plant. Blue Circle adds to the growing list of international cement giants that are making a beeline for the Indian markets. The prospects in India are indeed good. Demand is anticipated to grow at well over 8% in coming years on the back of a boom in infrastructure spending. Supply growth on the other hand is likely to be negligible until 2002. With demand in developed markets likely to slow down, emerging markets like India are increasingly attracting the interest of global cement majors.


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