Dalmia Bharat, Shree Cements in race for LafargeHolcim’s Sri Lankan operations

Economic Times (Mumbai): A diverse set of domestic cement majors like Dalmia Bharat and Shree Cements along with South-based Ramco are in hot pursuit of LafargeHolcim’s Sri Lankan operations that the global cement major is divesting as part of a global portfolio realignment. 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 tons per annum (MTPA) grinding capacity and a 1.8 MTPA clinker capacity, it currently controls 40% of the six MTPA Lankan market, said analysts tracking the sector. To put it in perspective, the cement capacity in the city of Mumbai alone is 8.5 MTPA. 

The group sold 1.7 million tons of cement in 2015 worth about Rs. 1,073 crore (Sri Lankan Rs. 23.4 billion) 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 ton 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. 

“LafargeHolcim announced a CHF 3.5 billion (about $3.6 billion) divestment target for 2016 at the end of last year. As part of this intention and the Group’s ongoing portfolio management, LafargeHolcim is reviewing its portfolio,” said LafargeHolcim spokesperson. 

“The group already announced transactions in Morocco, South Korea, and Saudi Arabia on 17 March. As part of this divestment program, we are currently exploring a range of options including the divestment of Holcim Lanka. LafargeHolcim will provide regular status updates during the global divestment process.” 

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 of Shree Cements told ET. 

However, A.V. Dharmakrishnan, CEO of Ramco Cements, denied that they are 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-ups, especially in the north and eastern part 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. 

Interestingly, Ramco is also vying for Lafarge’s 11 million ton Indian portfolio as well. Baring Asia in 2013 had invested Rs. 1,400 crore in Lafarge’s Indian arm for a 14% stake before Lafarge bought them out two years later through a buyback. 

As of FY16, Dalmia Bharat has current and cash investments amounting to Rs. 2,800 crore and its debt to equity ratio is 1.8. Also one of the most cost-efficient companies in South, Ramco Cements’ balance sheet can easily absorb an acquisition. 

As on FY16, the company’s debt to equity ratio was 0.5. 

“For Indian cement companies this acquisition could be an opportunity to expand rapidly in island nation where not only local demand is picking up but also its strategic location to export in other markets making it good deal,” said an industry veteran on the condition of anonymity. Kumar Mangalam Birla controlled Ultra-Tech, the largest Indian player, is already the third largest operator in Sri Lanka. 

Post the $45-billion merger between Lafarge and Holcim, the combined entity had announced its target of achieving free cash flow of 3.5-4 billion Swiss Francs by 2018 through cost synergies and capital expenditure reduction. 

To achieve this, the parent has set a cost reduction target of 1.1 billion Swiss Francs.