Ciments Francais (France) has finally established a toehold in India, the world’s third largest cement market. The company is reported to have picked up a 50% stake in a 1.7 million tonne cement plant that has been hived off by Zuari Industries (50% stake).
The plant has been valued at US$ 80 per tonne (Rs 3,500 per tonne) and is in line with international rates.
The economic recovery that was witnessed during FY00 came as a boon to the cement sector, which had been languishing due to slow demand growth and low prices. With domestic activity picking up (especially in the housing sector) the demand for cement registered buoyant growth (up 15% in FY00). However prices continued to remain under pressure due to intense competition. This was mainly due to the fragmented nature of the industry. The consolidation in the sector brought hope of a better pricing environment.
Consolidation has progressed rapidly over the last one year. Infact there is speculation that several more deals are being planned in the sector. The move will benefit the sector by creating a structure that is suitable for a better pricing environment.
However, just when everything seems to be going right for the sector, unconfirmed reports that the monsoon may not be normal this year have created uncertainty. Drought in the parts of the country underscored these reports. Infact with construction activity banned in the drought hit areas, cement prices have once again turned weak as demand has slackened. The meteorological department is likely to be out with its reports only later this month.
Cement stocks have been under-performers in the stock market. The lingering doubt of a sub normal monsoon has been largely responsible for this. If, however, there were to be a normal monsoon after all, cement stocks could witness what has been denied to them for some time – better valuations.
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