L & T Plans New Ventures To Hike Cement Capacity

Larsen & Toubro (L&T), the Rs 5,677-crore company, is planning either an acquisition or a greenfield venture in Karnataka, Himachal Pradesh and Rajasthan to increase its cement manufacturing capacities.

The expansion is part of a plan to increase geographical spread and to tap markets throughout the country.

"We are thinking of various options, which includes both acquiring companies and setting up green field ventures", said M Karnani, President (operations) of L&T's cement division.

L&T has manufacturing facilities at Hirmi in Madhya Pradesh, Pipavav in Gujarat, Tadapatri in Andhra Pradesh, Chandrapur in Maharashtra and Jharsuguda in Orissa. The choice of states has been made keeping in mind the objective of having a nationwide presence.

 

"This will even out the impact of falling prices in certain regions during a certain period. Since cement is a cyclical industry and there is a price differential in various regions, having a wide presence helps in reducing the impact of falling prices," said a cement analyst.

As the capacities in Rajasthan are 107.13 lakh tonnes, Himachal Pradesh at 30.98 lakh tonnes and that in Karnataka at 61.26 lakh tonnes, L&T could go in for acquisitions in these regions.

"There is a good chance of demand growth in these regions," said an analyst. In 1996, per capita consumption in Himachal Pradesh was 103 kgs, in Rajasthan it was 84 kgs while that in Karnataka was 81 kgs.

With Gujarat Ambuja close to acquiring DLF Cement, L&T could also be looking at an acquisition. Himachal Pradesh has been an insulated market, with the main player in the region being Gujarat Ambuja. Analysts said that if L&T sets up a plant in H.P., it would mean tough competition for Gujarat Ambuja.

However, the company will not be in a hurry to expand capacities as it has recently commissioned its plant in Tadapatri, Andhra Pradesh is expected to commission the second phase by next year. " We have a long term plans to expand capacity. However, the timing will depend on the state of demand," said Karnani.

While the engineering and construction company is set to gain from the budget, the measures announced to give an impetus to the housing and infrastructure sectors is expected to boost cement demand in the country.

" The logistics in various regions will completely change given the fact that all cement majors have expanded capacities and are thinking of acquiring other smaller companies", said a senior L&T executive.