The stock of the small-cap cement player- Birla Corporation has zoomed over 14 per cent in trade today.
The company has announced that it is acquiring two units of Lafarge India- one in Chhatisgarh and the other in Jharkhand with mining rights for the limestone reserve, for a total consideration of ₹5000 crore. The two plants have a total capacity of 5.5 million tonnes per annum. This puts the deal valuation at $142/tonne.
In December 2014, when UltraTech acquired two cement units of JP in Madhya Pradesh, it was for a valuation of $175/tonne.
Birla Corp has got its hands on the cement units at an attractive price. The company currently has a total capacity of 10 million tonnes which are located in Rajasthan, Madhya Pradesh, UP and West Bengal. With this acquisition, the company will get its foot in the eastern market too. In East India, prices rule at above the all-India average as the demand is almost equal to supply. In July, the eastern region reported an average price of ₹320/50 kg bag, while the all-India average price was ₹297. However, given that over 2016-17, the eastern region is set to see a significant capacity addition, the incremental supplies may bring down prices.
Why Lafarge sold
In April 2014, Lafarge and Holcim- the two global cement majors announced their merger. However, to approve the tie up in India, the Competition Commission had asked Lafarge India to give away two of its plants in east India. This is because Holcim is a dominant player in India with holdings in ACC and Ambuja Cements. Since the CCI order, the cement major was hunting for buyers for its units. Though several big names including CRH and Heidelberg were rumoured to be competing for the plants, it has finally gone to Birla Corp.