Nov 25, 1999|
Lafarge close to acquiring DLF Cements
The financial institutions (FIs) have stated that the promoters of DLF Cements have approached them for permission to sell off their 42% stake in the company to French cement major, Lafarge. DLF cements has a cement plant with a capacity of 1.4 million tonnes per annum.
The Indian cement industry had been one of the worst affected due to the recent slowdown in the domestic economy. The situation was amplified by the commissioning of large capacities even as the Indian economy entered a slowdown. This led to companies posting a sharp decline in profitability and infact some even saw complete erosion of their bottomline to post a loss.
It being a commodity business, cost is the main factor in the cement industry. Larger plants are able to benefit from economies of scale that are absent for smaller operators. In the Indian context, there is large price and demand variation across various regions within the country. Therefore, companies with a national presence have a natural hedge as against regionally based companies. In view of this, companies like DLF Cement, which operate one single plant, are exposed to larger variations in earnings.
Selling out to Lafarge will benefit the company in a number of ways. The company will become a part of a larger cement group, thus benefiting in terms of a fresh inflow of experience and resources. This will also help the company in rationalising its capital structure to reduce debt. This will add to the bottomline of the company as interest outgo is pruned.
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