Birla Said to Consider Holcim-Lafarge Assets: Corporate India

Ultratech Cement Ltd. (UTCEM), India’s biggest maker of the material, is looking to buy the local assets of Holcim Ltd. (HOLN) and Lafarge SA (LG), according to a person with direct knowledge of the matter.

Billionaire Kumar Mangalam Birla, who controls Ultratech, is waiting to see what will be on sale as the two European companies prepare to dispose of plants, the person said, asking not to be named because the matter is private. Holcim and Lafarge, which agreed to a merger last month, may divest in Brazil, India, China, Canada and the U.S., Lafarge Chief Executive Officer Bruno Lafont told investors on April 7.

The ready availability of assets may help the Indian firm gain market share without having to build greenfield factories, said Rashesh Shah, an analyst at ICICI Securities Ltd. in Mumbai. Birla’s plan also underscores optimism among investors that a stable government after elections this month will spur a revival in the $1.8 trillion economy as it crawls out of the slowest pace of expansion in a decade.

“Holcim-Lafarge’s asset shedding is a big opportunity for Ultratech to bolster its market share,” said Shah. “Being the largest player in the sector with a healthy balance sheet, it is a natural buyer of good assets on the block.”

India Capacity

Jona, Switzerland-based Holcim and Paris-based Lafarge are preparing to sell assets with 5 billion euros ($6.9 billion) in revenue to win regulatory approval after announcing plans to form the world’s largest cement maker with combined annual sales of $40 billion. The total cement capacity in India held by the two and units is about 62 million metric tons.

Mumbai-based Ultratech plans to add 20 million tons to its current 58 million ton capacity in the next three years, for which a few buyouts will be necessary, the person said. The company is also scouting for assets and sites to build plants in Indonesia, Thailand, Myanmar, Oman, the Philippines and Malaysia. It is already present in the United Arab Emirates, Sri Lanka, Bangladesh and Bahrain.

Pragnya Ram, group spokeswoman, didn’t respond to an e-mail seeking comments on the company’s plan.

“There’s a huge market interest and we are currently working on the filing and divestment packages,” Eike Christian Meuter, Holcim’s Zurich-based spokesman wrote in an e-mail yesterday, without elaborating. Elodie Woillez, Lafarge’s spokeswoman in Paris, declined to comment.

Jaiprakash Unit

Birla, whose net worth is $8.8 billion according to the Bloomberg Billionaires Index, took over as chairman of the $40 billion Aditya Birla group in 1995. He is seeking to boost revenue of the carbon black-to-cellular service conglomerate by 63 percent to $65 billion by 2015.

In September, Ultratech bought the 4.8 million ton Gujarat unit of Jaiprakash Associates Ltd. (JPA) for an enterprise value of 38 billion rupees ($631 million) in Birla’s biggest acquisition in more than two years.

The company was in talks to buy a second cement unit in Himachal Pradesh from India’s only Formula One track builder, the person said. The negotiations are on hold as Jaiprakash’s plant is awaiting some approvals.

‘Extremely Attractive’

Ultratech’s net income increased almost 61 percent over the past three years and sector analysts expect it to rise by 51 percent in the next two years, data compiled by Bloomberg show. Shares have advanced 15 percent this year to 2,030.80 rupees, compared with a 6 percent gain in the benchmark S&P BSE Sensex. (SENSEX)

“We have the balance sheet, the wherewithal, the cash flows and knowhow of running a cement unit,” Birla had said in a September interview with Bloomberg TV India, signaling his intent to expand through acquisitions. “Therefore, it is extremely attractive for us to expand in this market.”

His comments contrast those he had made six months earlier to the same television channel, when he said he would rather invest in countries including Brazil and Indonesia as frequent policy changes at home discouraged spending by companies.

Investors are betting elections, set to end May 12, will herald a new government that will cut red tape and revive projects that are awaiting land acquisition to fuel supply. Most opinion polls show voters will punish the ruling Congress party after it failed to rein in graft and inflation. The surveys predict Narendra Modi’s Bharatiya Janata Party winning the most seats in parliament, while falling short of a majority.

Buoying Demand

“Brownfield projects are expected to take off in a significant way post elections,” said Deep Narayan Mukherjee, a Mumbai-based director at India Ratings & Research, the local unit of Fitch Ratings Ltd. “All this is likely to buoy cement demand in the coming quarters.”

Capacity addition is crucial for Ultratech to retain its leadership position, said Shah. In a $1 billion reorganization of its Indian businesses in July, Holcim said one of its subsidiaries, Ambuja Cements Ltd.. (ACEM) would buy out the Swiss cement marker’s stake in the other, ACC Ltd. (ACC), effectively bringing both under a single management.

In India, the merger will create the largest market share in the eastern states of West Bengal, Jharkhand and northern Odisha, making these the probable hotspots for asset sales, according to Mukherjee. Unlike southern India that suffers from oversupply, the eastern region has sufficient demand, making these assets among the most lucrative, he said.

“Given the way Indian cement industry has been consolidating, it is reasonable to anticipate that the sector leaders will do something,” Mukherjee said. “The big boys in India will be pushed into action when the Holcim-Lafarge assets come up for sale.”

To contact the reporter on this story: Bhuma Shrivastava in Mumbai at bshrivastav1@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net Sam Nagarajan, Indranil Ghosh

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