Coal news and updates

For the top two cement producers in the country, the focus is shifting back to operational efficiency as they have crossed most of the policy hurdles.

 

LafargeHolcim, the world’s largest cement producer and the second biggest in India, is expected to focus on consolidation and inorganic growth options, something it had so far put on the back-burner. On the other hand, UltraTech Cement Ltd, the fifth largest in the world and the largest in India, is expected to focus on rebalancing its existing capacities.

 

On 21 July, the Cabinet Committee on Economic Affairs approved Ambuja Cements Ltd’s planned acquisition of a 24% stake in Holcim India Pvt. Ltd. That paved the way for the proposed restructuring of the holding pattern of Holcim’s India units, ACC Ltd and Ambuja Cements Ltd.

 

This approval has been awaited since July 2013 and has put on hold the company’s expansion plans. This is now likely to change.

 

“We are expecting a formal approval in (the) next three weeks. The company would be focusing on consolidation and deriving synergy benefits. The company would be looking at inorganic opportunities after streamlining the ownership structure in India,” said a senior LafargeHolcim executive on the condition of anonymity.

 

Once complete, the restructuring will make ACC a unit of Ambuja and generate free cash flows worth Rs.3,500 crore for LafargeHolcim.

 

“With restructuring finally going though, they could focus on adding capacities, albeit small—3-5 million tonnes over the next three years,” said Nitin Bhasin, head of research at Ambit Capital Pvt. Ltd.

 

The LafargeHolcim executive cited earlier added that the new structure will be more capital efficient and earnings per share accretive from year one of integration as per the original plan envisaged in 2013.

 

“The company will have (a) strong and debt-free balance sheet with cash-flow diversification,” he said.

 

According to the Ambuja Cements website, the consolidation will have a synergy potential of approximately Rs.900 crore through supply chain and fixed cost optimization. A presentation posted on the website said the recast will result in more efficient capital structure and lower cost of capital due to larger asset base and greater scale.

 

“India will remain an important market for LafargeHolcim and the group will continue to maintain a strong presence in the country, reinforced by the simplified structure, with a cement capacity of more than 60 million tonnes and a distribution network that extends across the country,” said a spokesperson for LafargeHolcim.

 

For UltraTech Cement, there is a target to achieve—that of 100 million tonnes capacity by 2020.

 

It has reached striking distance with its acquisition of 21.2 million tonnes of cement capacity from Jaiprakash Associates Ltd. Once the deal is complete, UltraTech will have an overall capacity of 90 million tonnes, of which more than 87 million tonnes would be in India.

 

The “next 18-24 months for UltraTech would be about consolidation. We have agreed to buy cement plants of Jaiprakash Associates in five states. We need to digest that first,” said a senior UltraTech executive, requesting anonymity.

SOurce: Livemint.com