Lafarge, global cement major, seems bent on making a back door entry into India despite having faced setbacks recently. The company is reported to have initiated talks with Shree Cement to acquire a strategic stake in the 2.2 million tonnes per annum cement company. Larsen and Toubro, on the other hand, is looking at acquiring capacities in the west and south.
The recessionary conditions that prevailed in the Indian markets over the last couple of years have catalysed the consolidation in the Indian cement industry. In recent months several deals have been announced involving Grasim (buyout of cement capacity of Indian Rayon), Lafarge (Tata Steel's cement plants) and Gujarat Ambuja (stake in DLF Cement). A number of other deals too have been concluded in recent months.
The optimism stems from the pick up in economic activity that is likely to lead to a more vibrant cement market.
Marginal players like Shree Cement are unquestionably the most suited targets for takeover. This is so because these companies have capacities that are economical to run, but lack a larger presence (that is, they run single plants). Thus, their performance is closely tied to the demand and supply of cement in that market. The acquiring companies are looking at having a national presence by acquiring such companies in various markets. This offers an economical and time saving method of capitalising on the expected boom in the Indian economy.
L&T, too, is looking at the acquisition route to step up its capacity to maintain its leadership position in the Indian cement industry. The company is likely to benefit in terms of a wider presence that will provide a natural hedge in terms of cement price realisations.
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