Demand upswing of steel & cement in india

As long term demand upswing of steel & cement in india is assured, larger players in both Sectors probably look for distressed assets in the coming months 

Avinash Gupta, consultant with Deloitte India said, “Consolidation is typically driven when there is an overcrowding in the industry or a shortfall in terms of work for everybody.” In the case of cement, the situation is similar to steel, as the larger players are on the look out for capacity expansions as well. Take the recent example of Lafarge India – the Indian subsidiary of the world’s largest manufacturer of cement. To expand its reach and become a more national player, it is trying to purchase Chennai-based Ramco Group’s West Bengal cement grinding unit for around Rs.3.5 billion, which originally took an investment of Rs.1.20 billion to set up. Given the strong demand from building and construction, recent forecasts and upcoming development projects in India, most large cement producers are eying expansions of up to twice their capacities. For buyers in steel & cement, this is a better route to the greenfield option, which has become a red flag in India due to land acquisition controversies. On the other hand, the sector has a number of smaller players facing pricing pressures at the moment due to a dip in demand that is typical in the monsoons. Prices are down by around Rs.20 per bag since April. Moreover limestone costs could go up by around Rs.75-80 per tonne after the new mining laws. Furthermore delayed execution and the slowdown imminent in real estate with high interest rates would have an obvious negative effect. Larger players can survive more easily on volumes and also push surplus to off trade markets. But regional players face a high probability of losses and often look to milk their assets to a suitable bidder. This year, the only major acquirer so far has been Ambuja Cement, which has bought an 85% majority stake in Nepal’s Dang cements for Rs.191.3 million. But in both steel & cement, the coming months should see a number of incremental value generating deals and the competitive battle lines getting redrawn.

Read more....

Source : IIPM Editorial, 2012.

An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management