Among the long list of private equity buyout funds and cement companies jostling to grab Lafarge’s Indian assets that have recently been put up for sale is a surprise candidate – billionaire businessman Ajay Piramal.
In an interesting diversification move that has raised eyebrows of most competitors, Piramal, chairman of the over $4 billion eponymous group, has thrown his hat in the ring as Lafarge last month initiated plans to sell its entire Indian operations of 11 million tonnes per annum for an estimated $1.5 to $2 billion, said multiple sources aware of the transaction.
Ever since he sold his flagship pharma business for a jaw dropping $3.8 billion six years ago, there has been endless speculation on what could be Ajay Piramal’s next big play. When contacted, spokespersons from Piramal Enterprises and Lafarge India declined to comment.
At the core of Piramal’s investment thesis, say sources, is his belief that in the next 12-18 months, spending on infrastructure will pick up as India looks to bounce back on its 8 per cent plus growth trajectory. The group already has legacy manufacturing expertise that can be exploited going forward. "From railways to highways and roads, we are looking at several high profile projects taking off in the next 1-2 years. Cement will be the building blocks and at the core of it," said an official in the know. "This is a long term business that is unlikely to get disrupted by change in technology," he added.
Piramal is not looking to use Piramal Enterprises, the listed group flagship housing his healthcare, financial services and information management business for the Lafarge acquisition. Instead, one of his private companies or a family investment arm will be the likely vehicle for the transaction. However, the talks are still in early stages, cautioned these officials. It is also not clear as yet if Piramal would go solo or opt for a financial partner subsequently if they indeed progress to the final rounds of negotiations.
With large assets available for consolidation along with savvy management teams, some believe this is also the best time to enter the space and build a cement platform by backing the right management teams and scale up. One of the sources cited above even said headhunting firms have also been approached to scout for senior management personnel for the new foray and feelers have already gone out to a handful of top talent in existing firms, but this could not be independently verified. "Lafarge is a marquee asset and arguably the best opportunity if one is looking at scaled operations. Along with assets even the incumbent management team will move to the new acquirer. So for a newer entrant who is looking at this space seriously, this is one of the best opportunities available to build on," said a cement sector analyst privy to the ongoing discussions.
While some see this as an opportunistic exercise by Piramal to branch into a sunrise sector, many see the development as a natural extension of his existing interest in real estate and infrastructure. "From clean tech to roads, from telecom to real estate, the conglomerate has used its structured finance group to lend to various core sector projects. But that is largely through debt financing. This will be unique as it is a big strategic move to actually run the cement business as an operator using the equity route," said an investment banker who works closely with the group.
Since 2011, Piramal’s son Anand has also ventured into real estate development with Piramal Realty and is developing 10 million sq ft across 6 projects in Mumbai. Additionally, with over $3 billion parked through several of their sector-focussed funds and lending arms, the Piramals are today the second largest investor in realty after HDFC.
In February, LafargeHolcim had agreed to sell its entire India operations after regulatory hurdle over transfer of mines came in between its earlier plans to divest two of its assets to Birla Corp for Rs 5000 crore. Exiting the entire business was alternate remedy for the merger of LafargeHolcim’s legacy Indian operations. LafargeHolcim’s India presence comprises cement capacity held under three subsidiaries – Lafarge India Pvt Ltd, ACC Ltd and Ambuja Cements Ltd. Post divestment of Lafarge’s 11 million tonnes, the merged entity would have a total capacity of about 60 million tonnes.
Dalmia Bharat gets CCI nod to buy 15 per cent stake in Dalmia Cement Dalmia Bharat has got fair trade regulator CCI’s approval to acquire 15 per cent stake in its subsidiary Dalmia Cement Bharat from private equity giant KKR for over Rs 1,218 crore in a cash and stock deal. Post the deal, Dalmia Cement Bharat Ltd (DCBL) will become a wholly-owned subsidiary of Dalmia Bharat Ltd (DBL).
Competition Commission of India (CCI) has cleared the proposed deal, as per information on the regulator’s website.The deal has earned KKR Mauritius Cement Investment a return of 2.4 times on its investment of Rs 500 crore that it made in September 2010.
"Dalmia Bharat Ltd (DBL) signed a definitive agreement with KKR, under which it will acquire KKR’s 15 per cent stake in DCBL in return of KKR getting 8.5 per cent stake in DBL as well as Rs 600 crore in cash," Dalmia Bharat Group MD Punit Dalmia had said in January.
As per reports, DBL will make a preferential issue of 7.5 million shares to KKR at Rs 825 a share and pay KKR Rs 600 crore (USD 89 million) in cash for its around 15 per cent stake (about 3.79 crore shares) in DCBL. With the agreement, KKR will be the largest institutional shareholder in DBL.
DBL provides management services to the group companies belonging to the Dalmia Bharat group, owns intellectual property such as trade names for its group companies and holds shares in the group companies, either on its own or through its subsidiaries. DCBL is active in the cement manufacturing industry. It is also engaged in the manufacturing of refractories.
This was the first major deal in the cement sector after the government in January this year sought views from public on amending the Mines and Minerals (Development & Regulation) Act, 2015 to include provisions allowing transfer of captive mines granted through procedures other than auction.
Shree Cement readies Rs 6,000 cr for expansion
Unlike the other companies such as UltraTech, Birla Corporation and JSW Cement Etc. who have been in the race for acquisitions, relying on takeovers and mergers to expand. However Shree cement on the other hand is taking a different route, focusing on greenfield projects.
It has lined up a capital expenditure of Rs 6,000 crore to construct three new cement plants.
The first in the line – a plant in the Baloda Bazar-Bhatapara district in Chhattisgarh, with a minimum capacity of 3 mt – will be announced in four months. The company has recently won a bid for limestone reserves at the Karhi-Chandi area in the state, through an e-auction in February.
This block has an estimated reserve of 166 mt, with 80 mt cement-grade limestone. In Karnataka, the company has already purchased 1,500 acres over five years. These expansion plans will be funded from the company’s internal accruals. Its net profit took a hit, falling from Rs 1,003.97 crore in 2013 to Rs 787.24 crore in 2014, and then to Rs 426.33 crore in 2015.
During the July-December period this year, the company registered a net standalone profit of Rs 231.59 crore, while the profit margin fell to 6.52 per cent.