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Guj Ambuja to acquire 51% of DLF Cement - Views on News from Equitymaster
 
 
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  • Dec 15, 1999

    Guj Ambuja to acquire 51% of DLF Cement

    Gujarat Ambuja has stated that it will acquire a 51% stake in DLF Cement, a north based cement manufacturer having a capacity of 1.3 million tonnes per annum. The deal is likely to be worth approximately Rs 3.5 bn.

    GACL is the largest manufacturer of cement in Gujarat and Punjab. It is India's most efficient cement manufacturer due to high degree of mechanisation in its products and mining activities. It has controlled freight costs by moving bulk of its production through the sea route.

    GACL will purchase a 21% stake, in a two step process, at a cost of Rs 12.65 per share from the promoters of the company. The company would then make an open offer to the public for an additional 20% at Rs 13.85 per share. DLF Cement has an equity capital of Rs 1.7 bn and total loans outstanding of Rs 3.9 bn. The company had accumulated losses of Rs 1.4 bn as on September 1999.

    The DLF Cement plant is based in Rajasthan (north India) and thus has crucial significance for GACL. The acquisition will help consolidate its leadership position in the northwestern and western market, and at the same time prevent the back door entry of a larger competitor like Lafarge. GACL has acquired the capacity at a very competitive rate of approximately Rs 2,500 per tonne.

    The acquisition will bring Gujarat Ambuja closer to achieving its goal of doubling capacity within the next three years. Another crucial advantage of this deal is that the company will be able to capitalise on the favourable demand supply scenario that is likely to emerge in the cement sector over the coming 2-3 years. Setting up a new capacity would take anywhere between 18 24 months and could result in the company missing the opportunity.

    Market View:
    The fact that GACL is India's most efficient producer of cement has led the analyst to rate the stock as a 'BUY'. The management quality of the company is considered to be another factor in favour of the company.

     

     

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