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Dalmia Cement

KKR-backed Dalmia Cement to acquire Adhunik Cement for $105M

28 September, 2012

Dalmia Cement (Bharat) Ltd has signed an agreement to buy, a privately held firm based in Kolkata with cement manufacturing units located in Meghalaya, for Rs 560 crore ($105 million). The acquisition and the payout would be in multiple tranches, subject to adjustments and various other terms and conditions, as per the company.

Dalmia Cement (Bharat) is a subsidiary of the public listed Dalmia Bharat Enterprises, which is backed by the private equity firm Actis. Dalmia Cement separately counts PE giant KKR as a shareholder.

Adhunik Cement, part of the Rs 3,500 crore conglomerate Adhunik Group, has its manufacturing facility in the Jaintia Hills in Meghalaya, and the cement is produced by the Adhunik Group’s JV with the MSP Group. The fully integrated cement plant with a capacity of 1.5 million tonnes per annum also operates a 25 MW power plant. Adhunik Group is engaged in mining, steel, power and value-added steel products.

The deal values Adhunik Cement at around Rs 3,733 per tonne, higher than another deal by Dalmia Cement in the region (more on that later). The company specialises in Portland cement and is one of the largest cement manufacturing units in the north-east region.

For Dalmia Cement (Bharat), one of the mid-size cement firms in the country, the acquisition would strengthen its presence in the NE region market. Dalmia Cement has been planning to increase its presence in Meghalaya, where limestone is available in abundance. Understandably, its peers like Lafarge also have presence in the state.

Earlier this year, Dalmia Cement acquired 50 per cent stake in Kolkata-based Calcom Cement India Ltd, for Rs 238 crore. Calcom has its cement plant in Assam.

That deal also involved multiple tranches through a combination of fresh issue of shares and acquisition of existing shares of the privately held firm.

Calcom is a manufacturer of OPC and PPC cement, and is currently expanding its consolidated cement manufacturing capacity to 2.1 million tonnes per annum. Bulk of its sales are targeted at the north-east region market where the demand is pegged at over 5 million tonnes a year (around half of which is catered by cement plants in other regions).

The deal valued Calcom Cement at Rs 576 crore or around Rs 2,743 per tonne (given its immediate project capacity) or Rs 3,388 a tonne (based on its initial capacity of 1.7 million tonnes). This is less than the valuation commanded by the country’s largest cement-maker UltraTech and that of another giant ACC, but around the same valuation as a few other small and mid-sized cement firms.

Dalmia Cement had a relook at its strategy after the downturn of 2008-2009. It planned to add 10 million tonnes per annum (mtpa) capacity with greenfield projects in Himachal Pradesh, Meghalaya, Rajasthan and Madhya Pradesh. However, those plans did not fructify and it has been looking to expand via the inorganic route.

The company has been eyeing cement firms in southern and eastern regions of the country, which have recently set up or are setting up capacities but facing issues in running operations, given the subdued demand and high costs of production. The deal appears to be a consolidation play for the PE-backed firm.

The company had raised funds from KKR around two years ago in the largest private equity deal in the Indian cement industry. KKR currently owns around 15 per cent in Dalmia Cement.

In another impending deal, Irish building materials group CRH Plc is in negotiations with Jaypee Cement Corporation for buying an equity stake in Jaypee’s Gujarat cement business. The plant in question is the company’s 3.6-million tonne clinker plant at Kutch in Gujarat, with a cement grinding capacity of 2.4 million tonnes. The valuation of this plant (on capacity-per-tonne basis) is believed to be almost twice the rate being shelled out by Dalmia Cement for Adhunik (as also for Calcom).

(Edited by Sanghamitra Mandal)


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KKR-backed Dalmia Cement to acquire Adhunik Cement for $105M

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