Concrete

Nailing the mega deal

Published

2 years ago

June 13, 2022

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Adani Group’s takeover of Holcim’s stakes in Ambuja Cement and ACC is touted as the biggest open offer in the history of corporate India.

At the open offer price of Rs 385 per share, using a key industry valuation metric of enterprise value (EV) per tonne, standalone Ambuja Cements NSE has been valued at nearly $299 per tonne. In contrast, ACC at an open offer price of Rs 2,300 per share is valued at about $131.4 per tonne. This reflects the inherent differences in the operational efficiency and thereby performance of the respective companies.

Other leading players in the cement industry, like Ultratech, which has the largest capacity in the sector with nearly 120 million tonnes, is currently valued at the stock markets at nearly $199 per tonne. Shree Cement with a capacity of nearly 47.4 million tonnes is valued at about $223 per tonne. Enterprise value is a measure of the company’s total value, and it is calculated by adding market capitalisation of a company plus its debt and minus the cash in the books.

The standalone Ambuja Cements has one of the highest operating margins in the industry, and in FY 2022, Ambuja Cements standalone operating profit margins were nearly 23 per cent, a decline of 4.6% YoY, on sales of Rs 14,268 crore. Meanwhile, ACC’s standalone operating profit margins were at 18.4 per cent, a fall of nearly 0.9% YoY in the 12 months ended FY 2022. In the case of Ultratech, standalone operating margins were at 22.7 per cent during FY 22, a fall of nearly 4%. Shree Cement recorded a 22.2 percent margin as against 30 percent in the previous year due to surge in power and fuel costs.

It is interesting to compare today’s scenario with the one 10 years ago in September 2012 when ACC was valued at $132 per tonne, similarly, enterprise value per tonne of Grasim and UltraTech was $121 per tonne and $176 per tonne, respectively. In case of Ambuja Cements, the company’s valuation was at $171 per tonne. The 212-million-tonne cement industry then saw major deals at a valuation of as high as $235 a tonne paid by Irish firm CRH for My Home Industries in 2008. Portuguese player Cimpor paid $162 for Shree Digvijay Cement Company in 2007 while Holcim paid $200 for Ambuja Cements.

However, the deal in June 2008 when French firm Vicat paid $100 a tonne for Sagar Cements, was the lowest in the previous years of M&A activities. The story has not changed as event then as now, coal prices rocked the destinies of cement companies. The decline in coal prices from as high as $160 a tonne to as low as $70 a tonne changed fortunes even then.

Coming back to the current scenario, the key problem continues to be the rising prices of pet coke and coal doubling during the year. Cement firms reported single digit sales growth for the second consecutive quarter in January-March driven by gradual demand recovery as well as price hike even as higher costs due to rise in crude oil and coal prices impact profits and margins. Competitive prices are compelling cement makers to explore alternatives to coal.
Over the next few months, the demand for coal and pet coke is expected to slow down while the prices would continue to remain high. Although cement prices have also hiked up, the rise is not enough to make up for the fuel prices. The inability to pass on costs fully to customers remains a primary concern. Now with the RBI raising the repo rate demand is likely to continue to shy away.

Founder & Editor-in-Chief, Pratap Padode

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Concrete

Construction Costs Rise 11% in 2024, Driven by Labour Expenses

Cement Prices Decline 15%, But Labour Costs Surge by 25%

Published

2 days ago

November 19, 2024

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The cost of construction in India increased by 11% over the past year, primarily driven by a 25% rise in labour expenses, according to Colliers India. While prices of key materials like cement dropped by 15% and steel saw a marginal 1% decrease, the surge in labour costs stretched construction budgets across sectors.

“Labour, which constitutes over a quarter of construction costs, has seen significant inflation due to the demand for skilled workers and associated training and compliance costs,” said Badal Yagnik, CEO of Colliers India.

The residential segment experienced the sharpest cost escalation due to a growing focus on quality construction and demand for gated communities. Meanwhile, commercial and industrial real estate remained resilient, with 37 million square feet of office space and 22 million square feet of warehousing space completed in the first nine months of 2024.

“Despite rising costs, investments in automation and training are helping developers address manpower challenges and streamline project timelines,” said Vimal Nadar, senior director at Colliers India.

With labour costs continuing to influence overall construction expenses, developers are exploring strategies to optimize operations and mitigate rising costs.

Concrete

Swiss Steel to Cut 800 Jobs

Job cuts due to weak demand

Published

3 days ago

November 18, 2024

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Swiss Steel has announced plans to cut 800 jobs as part of a restructuring effort, triggered by weak demand in the global steel market. The company, a major player in the European steel industry, cited an ongoing slowdown in demand as the primary reason behind the workforce reduction. These job cuts are expected to impact various departments across its operations, including production and administrative functions.

The steel industry has been facing significant challenges due to reduced demand from key sectors such as construction and automotive manufacturing. Additionally, the broader economic slowdown in Europe, coupled with rising energy costs, has further strained the profitability of steel producers like Swiss Steel. In response to these conditions, the company has decided to streamline its operations to ensure long-term sustainability.

Swiss Steel’s decision to cut jobs is part of a broader trend in the steel industry, where companies are adjusting to volatile market conditions. The move is aimed at reducing operational costs and improving efficiency, but it highlights the continuing pressures faced by the manufacturing sector amid uncertain global economic conditions.

The layoffs are expected to occur across Swiss Steel’s production facilities and corporate offices, as the company focuses on consolidating its workforce. Despite these cuts, Swiss Steel plans to continue its efforts to innovate and adapt to market demands, with an emphasis on high-value, specialty steel products.

Concrete

UltraTech Cement to raise Rs 3,000 crore via NCDs to boost financial flexibility

UltraTech reported a 36% year-on-year (YoY) decline in net profit, dropping to Rs 825 crore

Published

3 days ago

November 18, 2024

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UltraTech Cement, the Aditya Birla Group’s flagship company, has announced plans to raise up to Rs 3,000 crore through the private placement of non-convertible debentures (NCDs) in one or more tranches. The move aims to strengthen the company’s financial position amid increasing competition in the cement sector.

UltraTech’s finance committee has approved the issuance of rupee-denominated, unsecured, redeemable, and listed NCDs. The company has experienced strong stock performance, with its share price rising 22% over the past year, boosting its market capitalization to approximately Rs 3.1 lakh crore.

For Q2 FY2025, UltraTech reported a 36% year-on-year (YoY) decline in net profit, dropping to Rs 825 crore, below analyst expectations. Revenue for the quarter also fell 2% YoY to Rs 15,635 crore, and EBITDA margins contracted by 300 basis points. Despite this, the company saw a 3% increase in domestic sales volume, supported by lower energy costs.

In a strategic move, UltraTech invested Rs 3,954 crore for a 32.7% equity stake in India Cements, further solidifying its position in South India. UltraTech holds an 11% market share in the region, while competitor Adani holds 6%. UltraTech also secured $500 million through a sustainability-linked loan, underscoring its focus on sustainable growth driven by infrastructure and housing demand.