The scenario of mergers and acquisitions is still vast in the cement industry. The entry of many multinationals, the other MNCs planning to enter the Indian market and the consolidation of the companies in India have been forcing mergers in the cement industry. Just after a month of the acquisistion of 50% stake in South Indian Zuari cement (a K.K.Birla company), Italian major Italcementi is planning to acquire a Delhi based Jaiprakash Industries (JP). Why are the MNCs entering India? Who is benefitted by the merger, is it Jaiprakash or Italcementi?

With the expected huge demand in the Asian countries in the future, India being a convenient country for the export oriented activities and with the cheaper labor, there are many cement companies entering India. The long overdue of Italcementi, other than the multinationals, Lafarge, Holderbank etc who have been trying to make a foray into India, has been met with Zuari cement. The company has already announced its plans to increase the capacity to 6 mn tonnes from 1.7 mn tonnes. In a direction of strengthening its presence, it has been looking out at the other geographical location based companies as well. The Jaiprakash group is strong in northern markets and Italcementi is the Europe's largest cement company having 65 mn ton capacity.

In the recent days, the world over scenario has changed from the diversified mergers and acquisitions to the building up of the core competence in an industry and sticking to its competency. Unilever, the world major in FMCG products has been pruning down its product mix from 2,500 to 450. Tata, a conglomerate group has been cutting down its diversifications by which ACC is already sold off and it is also planning to sell off its chemicals division. Boston Consulting Group, which conducted a study on L&T businesses had advised it to hive off its cement business and concentrate on its construction business, which L&T is already planning to implement. L&T's plan on the anvil is once again an opportunity for the leading companies, which are desperately waiting for.

Recently, Jaiprakash Industries has decided to concentrate on its core business of construction and engineering to build on its competency and has decided to hive off its 2.5 mn tonne cement business to its wholly owned subsidiary, Bela Cement at book value. The valuation of the company at Rs 1,400 crore has faded away the interest of the other companies Lafarge and Cemex, which have been trying out for the acquisition of the company leaving Italcementi in the fray.

The Italcementi's capacity would reach 4.2 mn tonnes, an increase from 1.7 mnm tonnes with JP group. The Italian major, which has recently picked up a 50% stake in Zuari cement at Rs 299 crore would need to spend another Rs 700 crore for the acquisition of 50% stake in JP cement. The Italcementi group, which manages 57 cement plants, 165 quarries, and 533 batching units is the largest cement manufacturer in Europe with the sales turnover of $ 3 bn. With the abundant experience of the company in the cement field and with the strong support of its size, there are chances of getting synergistic results in India.

K Venu Babu