The Hindu Business Line : Holcim entry shakes up cement industry

YEAR 2005 saw the dramatic entry of Swiss cement major Holcim into the country, changing one notion about the Indian cement industry - that it is impregnable in the main to the multinational.

Of course, the French major Lafarge had a modest presence in the country; and Italcementi has a stake in a medium-sized company.

But no multinational had been able to establish a major presence in the industry, either by way of owning large capacities or by way of owing a meaningful stake in a front-ranking company.

When Ambuja Cements bought into ACC five years ago and when Grasim eventually bought out L&T's cement division about two years ago, analysts and industry specialists talked about how the multinational had been kept at bay, how Indian promoters were able to keep the large capacities to themselves, and how an entry into India would now become very difficult for the multinational which would not be interested in the smaller, scattered capacities of other players.

The presence in India of Swiss major Holcim, which is now a promoter of The Associated Cement Companies, no less, changed all that.

Holcim bought out private equity investors, among others, to become majority shareholder in Ambuja Cements India Ltd (ACIL), which, after the mandatory open offer that followed, now holds 34 per cent stake in ACC.

Holcim also acquired majority stake in Ambuja Cement Eastern Ltd.

ACC was in a sense, vulnerable to this, having no well-defined promoter, but while the market wondered when and how Gujarat Ambuja (promoter of ACIL which had over 14 per cent stake in ACC) and ACC would further their relationship, the Holcim bombshell happened.

This, according to several analysts, has opened the doors for a deeper multinational presence in the industry. With such large capacities under its control, Holcim would now be less averse to buying up smaller capacities to "fill in the gaps", something which would have made no sense earlier.

So, will the multinational presence in cement now steadily increase?

The global majors and scouting around, yes. And, if smaller Indian companies merged to become bigger ones, their interest might be even greater.

The cement sector has been looking up. Demand wise, even the South, which had been sluggish, is steadily showing a greater appetite for the commodity.

There has been improvement price-wise, though not one that cement manufacturers say they are happy with. But the horizon looks promising to them. Several companies are already working at capacities over 90 per cent. And not much by way of new capacities either, and good export potential for some as well. Add to that so much construction and reconstruction work happening in the country.

Cement prices will rise, according to the industry.

But with this rising optimism, potential "acquiree companies" are pricing themselves higher too, in fact according to investment bankers, so high that they have priced themselves out of the market.

But, there are several factors that can allow more MNC breaches to happen.

The stakes of FIIs and private equity investors in cement companies have increased in the recent past. A multinational can get entry by way of bulk deals with these stakeholders.

Moreover, investment bankers have gotten very savvy as well and know how to detect a "trough" and effect a strike at the right time, say analysts.