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Dalmia Cements looking at M&As

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Says has put aside capital for these, besides some for new projects.

(Bharat) Ltd (DCBL), second largest producer from the southern region, is evaluating options to buy out cement companies.

DCBL had charted plans to launch a 10-million tonne per annum (mtpa) capacity in 2008 through its wholly owned subsidiary, Ltd (DCVL), which never took off. It was looking at setting up plants in Himachal Pradesh, Meghalaya, Rajasthan and Madhya Pradesh, with investment of about Rs 4,200 crore.

It did not set proceed with these and is looking at a spread of new projects and mergers & acquisitions (M&As) from the money it received through private equity infusion.

DCBL received Rs 500 crore from PE giant Kohlberg Kravis & Roberts (KKR) in May 2010 for a stake sale of 20 per cent in its cement subsidiary, Avnija Properties. KKR has an option to top it by another Rs 250 crore. It had assessed DCBL for an enterprise value (EV) per tonne of $104.

Puneet Dalmia, managing director, DCBL, says, “After the KKR investment, we have made significant progress in land acquisitions, land clearances and acquiring limestone reserves. We want to deepen our footprint in south and east India. Since 2008, we saw the global economy melting down, a lot of new players entering the market and some players struggle, which gives space to lot of M&A opportunities. So, after the KKR opportunity, we are looking at a mix of greenfield (new projects) and potential M&A opportunity. We have put aside some capital for the same. Though we really cannot put a hard number on how much capital we are putting aside, KKR has a large balance sheet and we will be able to do acquisitions.”

An e-mail sent to KKR was not answered. DCBL says it has used a part of the money which came from KKR for land acquisitions, government approvals and partly for debt repayments. The money is also being used for interest cost management.

On asset valuations of acquisitions, Dalmia did not provide any specific value. He added, “It will all depend upon the asset quality and location and how much more expansion possibility is present on that plant.”

DCBL was also looking at coal mine assets in Indonesia and South Africa. These didn’t take off. Dalmia said, “We continue to explore for coal mine assets in Indonesia and South Africa. Indonesia is taking a while because of the political unrest in the country and the sites that we saw had long gestation period. We are looking for the right asset and also the risk profile. We will look very carefully at something that we like; otherwise, we are importing from the best suppliers in the world.”

An analyst from a domestic brokerage said, “None of the projects have taken off and it is quite unclear which companies they are evaluating because all these players who are looking at selling off are looking at exorbitant valuations, which is hindering the deal environment. Players in the south are seeking $100-120 per tonne.”

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