Domestic cement producers like Dalmia Bharat, Shree Cements and Ramco are in the fray for LafargeHolcim?s Sri Lankan operations.
These players have been shortlisted after an initial round of screening and are competing with local Sri Lankan, Chinese and Thai cement makers and private equity players like Baring Asia as the race to acquire the largest and sole integrated cement operations in the island nation gathers momentum, said multiple source aware of the development.
Holcim makes cement straight from domestic limestone, a grinding plant that uses imported clinker, and a bagging plant that uses foreign-made cement. The Swiss group first took over a state-run cement factory in Puttalam in the west coast of Sri Lanka from a Pakistani firm, which bought it during a privatisation drive over two decades ago.
With an estimated 2.3 million tonnes per annum (MTPA) grinding capacity and a 1.8 MTPA clinker capacity, it currently controls 40 per cent of the 6 MTPA Lankan market, said analysts tracking the sector. The group sold 1.7 million tonnes of cement in 2015 worth about Rs 1,073 crore according to published data. Sources said the Lafarge-Holcim assets may get valued up to $300 million (Rs 2,010 crore).
This implies a per tonne valuation of Rs 700-Rs 750 crore, which according to analysts is comparable with Indian peers. At present, Sri Lanka?s per capita cement use is 200 kilos per person, also similar to that of India.
Standard Chartered Bank is advising LafargeHolcim to sell the Lankan assets. When contacted Dalmia and Baring Asia spokespersons declined to comment on market speculation. "We have been shortlisted but we are in the process of evaluating the opportunity. In a week?s time we will take a final call," HM Bangur, managing director, Shree Cements told the Economic Times newspaper.
However, AV Dharmakrishnan, CEO of Ramco Cements, denied that his company was in the fray.
Cement analysts believe the acquisition will strategically make more sense for players like Dalmia or Ramco, giving them access to a small but high growth market. Following the resolution of a decade long civil conflict, the Lankan government is emphasising on a massive infrastructure ramp-up, especially in the north and eastern parts of the island.
"In terms of logistics and transportation of cement, south-based Ramco Cements and Dalmia Bharat will gain from acquiring cement assets in Sri Lanka. They also have the strength of balance sheet in their favour," said a Mumbai analyst with a domestic brokerage.
"For Indian cement companies this acquisition could be an opportunity to expand rapidly in the island nation, where local demand is picking up, and also its strategic location to export to other markets," said an industry veteran quoted in the report. Kumar Mangalam Birla controlled UltraTech, the largest Indian player, is already the third largest operator in Sri Lanka.