BackUltraTech re-evaluates bid for Holcim’s Brazil assets
The firm may pull back at the binding stage, as it doesn't see much value in the investment, and focus on the local market instead
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Mumbai: India’s biggest cement maker UltraTech Cement Ltd is re-evaluating its decision to bid for the Brazilian assets of Holcim SA, according to two people familiar with the development.
The Aditya Birla group company had submitted non-binding bids for the cement assets in October, following which binding bids are due in January.
“After visiting their assets, we are rethinking about the bids and we may pull back at the binding stage as we do not see much value in the investment," said one of the persons quoted above.
The assets on sale include three integrated cement plants and two grinding stations with a total capacity of 3.6 million tonnes per annum (mtpa), as well as one ready-mix plant. On 7 July, Holcim Ltd and Lafarge announced a plan for comprehensive divestment in Brazil as part of the planned merger of equals to create LafargeHolcim.
Rather than investing in those assets, the company plans to focus and expand its domestic cement production, the person quoted above said. India is the second largest market for cement globally, second only to China, while Brazil is the fourth largest market.
An UltraTech spokeswoman said that company does not comment on market speculation.
The decision to re-think the Brazilian investment may also stem from weak demand conditions in the market. The Brazilian economy has seen sub 2% growth in the last eleven quarters, according to Bloomberg data. For the three months ended 30 September, the Brazilian economy contracted by 0.24%.
Brazil is also known to be a difficult market with its own set of challenges, experts say.
“It may be a good decision because between Brazil and the Philippines, where they are said to bid for assets, Brazil is not the best choice since the market has a lot of challenges," said Nitin Bhasin, head of research at Ambit Capital Pvt. Ltd, adding that the weakness in the country’s economy is also a factor to consider.
In November, Kumar Mangalam Birla, who heads UltraTech Cement as well the Aditya Birla group, had told Bloomberg News that the company is scouting for assets globally.
“We are at some sort of an inflection point, where we are strong in our domestic market and we want to look at investing abroad more aggressively," Birla said in an interview.
“As far as I can see, there’s no Novelis-type of transaction potentially in the cement sector. But, if there was in-principle, I’d surely love to do that," said Birla, adding that Asia Pacific, the Indian Ocean rim and South America are regions of interest to the company.
The company will also look at assets in India, he said. In India, UltraTech expects to scale up its capacity to 70 mtpa by early 2016 from 62 mtpa, Birla told shareholders at the company’s annual general meeting in August.
To be sure, some experts argue that the Brazil assets can be important for the company’s plan to increase its global presence in the cement business.
“For UltraTech Cement, the most logical step to increase its global footprint was through the inorganic route, considering the pain points in organic route and the Brazilian assets were one of the short cuts to boost global presence," said a senior analyst with a domestic brokerage, who is tracking the cement sector closely.
“If the quality of assets is bad, UltraTech Cement will have to continue scouting for better assets overseas as well as India to increase the capacity," the analyst said, requesting anonymity.
Holcim Brazil, part of Swiss firm Holcim, is Brazil’s fifth largest cement producer with an installed capacity of 4.50 mtpa across its four plants. It has operated since 1951 and employs around 2,000 staff across its Brazilian sites, primarily in the country’s south east.
Lafarge Brazil SA has been in Brazil since 1959. The company employs 1,800 people across its seven plants in the country with a total production capacity of 6.33 mtpa, making it the fourth-largest cement producer in Brazil.
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