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Lafarge to buy Raymond unit -- Rs 785-cr all-cash deal cemented

Our Bureau

MUMBAI, April 28

LAFARGE, the French cement major, on Friday entered into an agreement with Raymond Ltd to acquire its cement division in eastern India for Rs. 785 crores in an all-cash deal.

The division has a 2.24 million tonne per annum (mtpa) plant at Bilaspur and with this acquisition, Lafarge's total cement capacity in India will be 4.24 mtpa. The Bilaspur plant is a dry process one with ISO 14002 certification to its credit.

The funds needed for the acquisition will be raised here and abroad. ``It is too premature to talk of it,'' Mr. T. Thomas, Chairman, Lafarge India Ltd (LIL), said.

Kotak Mahindra Capital Company was advisor to Lafarge for the transaction, which is subject to necessary approvals and satisfactory completion of terms and conditions as per the agreement.

Mr. Gautam Hari Singhania, Managing Director, Raymond Ltd, said that receipts from the sale will be used to retire debt and invest in core competence areas _ textiles, distribution and retailing.

Though names were not disclosed, Lafarge did face competition in the bid to acquire the division, which currently employs about 800 persons. No retrenchment is anticipated ``at the moment''.

The price per tonne that Lafarge incurs in this acquisition is more than what it paid for Tisco's plant in eastern India, which was acquired for Rs. 550 crores in November, 1999.

``We feel justified with this price,'' Mr. Thomas Farrell, Chief Executive Officer, LIL, said. The Raymond plant is about 100 km away from the Tisco factory.

With its distribution network, the Raymond division is expected to enhance Lafarge's position in the eastern Indian market. Brand transition is also expected to happen at the earliest.

Mr. Farrell said that given adequate the limestone deposits with Raymond, there is scope for expansion. ``However, it depends on which location merits it.''

Lafarge does not preclude greenfield projects, but finds the current acquisition cost less than that for a similar sized greenfield factory and the stabilisation period attached to it.

On whether Lafarge could be expected to launch hostile bids for Indian cement companies, as in the case of Blue Circle abroad, Mr. Thomas said, ``At present, we have no intention of making any hostile bid. It is the last thing we want to do.''

Lafarge's Indian operation is expected to return profits during January-December, 2000. While no decision has been taken, an IPO is among the options at LIL, Mr. Thomas said. HDFC and Indus Venture hold 7.5 per cent each in LIL's $65-million equity base.

Rajesh Chandramouli reports from Chennai: The acquisition of Raymond's Bilaspur cement unit has sent a signal that the French major is in a hurry to spread its wings in what would be a leading cement manufacturing country in the world, industry experts s aid.

If Lafarge had wanted to set up a two mtpa greenfield unit, it would have taken anything between 18 and 24 months for the unit to be fully operational.

Instead, it has now got a fully functional unit. But it is paying a stiff price. Lafarge could have put up a 2 mtpa cement plant for Rs. 600 crores against the Rs. 765 crores paid by it.

The acquisition catapults Lafarge into the number one position in the Eastern region, with a marketshare of more than 21 per cent, followed by ACC with 17 per cent and the Ambuja group with six per cent. The East India market size is estimated at 12 mtpa .

Over the last year, Lafarge has demonstrated that with aggressive pricing, it can acquire companies with relative ease. It appears that the company's `carrot and stick' approach

has paid off, the experts said.

The company initially ``massacred'' the Eastern market by selling cement for under Rs. 100 per 50-kg bag when the going rate was Rs. 105 per bag, thereby forcing a lot of cement units to be put on block, industry sources said.

But the `carrot' lay in the valuations. The company has given a `decent' value to Raymond. The acquisition cost works out around $80 per tonne, which in the cement surplus Madhya Pradesh region is termed high.

But acquisitions overseas, which translate into a dominant marketshare, would be in the region of $160 a tonne.

Lafarge has now sent signals to the industry that it wants to be a long-term player when Indian prices could get aligned with global prices. Sources said that the Raymond cement unit was on block for a long time now.

Pic.: Mr.Thomas Farrell, CEO Lafarge India Ltd, Mr.T.Thomas, Chairman and Mr.Gautam Hari Singhania, Managing Director, Raymond Ltd, at a press conference in Mumbai on Friday.