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Business News/ Companies / News/  Merger of Lafarge, Holcim to pose tough challenge for UltraTech
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Merger of Lafarge, Holcim to pose tough challenge for UltraTech

Combined ready-mix cement sales of 4.7 million cubic metres will have the new entity, once it is formed, snapping at the heels of UltraTech

UltraTech, the largest cement maker in India, had sold 4.8 million cu. m of ready-mix cement in 2013-14. Photo: Pradeep Gaur/MintPremium
UltraTech, the largest cement maker in India, had sold 4.8 million cu. m of ready-mix cement in 2013-14. Photo: Pradeep Gaur/Mint

The combination of Lafarge SA and Holcim Ltd will pose a tough challenge to UltraTech Cement Ltd’s leadership in the Indian ready-mix concrete (RMC) market once the local part of their global merger is complete, company data showed.

Paris-based Lafarge and Switzerland-based Holcim on 7 April 2014 announced a $40 billion merger that makes the world’s largest cement maker.

UltraTech, the largest cement maker in India, had sold 4.8 million cu. m of RMC in 2013-14. It is yet to disclose its figures for 2014-15. According to the 2014 annual reports of Lafarge and Holcim, while Lafarge India Pvt. Ltd sold 2.6 million cu. m of RMC in India, Holcim’s subsidiary ACC Ltd sold 2.12 million cu. m.

Combined RMC sales of 4.7 million cu. m will have the new entity, once it is formed, snapping at the heels of UltraTech.

RMC is a kind of concrete made according to preset requirements and delivered at work sites on truck-mounted mixers. Its advantages include better quality mixture and less on-site work.

Out of Holcim’s two India subsidiaries ACC and Ambuja Cements Ltd, the latter is not present in the RMC business. Lafarge’s two Indian subsidiaries—Lafarge India Pvt. Ltd and Lafarge Aggregates and Concrete India Pvt Ltd—have been merged effective April 2015.

An UltraTech spokesperson declined to comment as the company is going through its “silent period" ahead of its March quarter earnings announcement likely next week. While a spokesperson for ACC refused to comment, a detailed query emailed to Lafarge India remained unanswered.

“At present, the RMC business has not picked up the way one had expected it to. It is right now a volume game and not about margins. With the expectation that construction and infrastructure will pick up, this is the sector that will benefit the most and see major cash generation once that demand comes in," said Amey Joshi, associate director, India Ratings and Research, who tracks cement companies.

The concrete segment in India is, however, a challenging space. “To enter and expand in the RMC segment in India is difficult for any organized player. To source the required raw materials for this business in a transparent manner is a challenge and can be a costly affair. While RMC is the way forward for any cement business, it is very challenging in India," said an analyst with a domestic brokerage firm who did not want to be identified.

The industry average contribution of the RMC business to a cement company’s total turnover is around 5-7%. According to Cement Vision 2025, a Confederation of Indian Industry-AT Kearney report released on 30 April 2014, RMC accounts for 8% of overall cement demand in India. This share is expected to increase up to 25% by 2025, the report said. India’s cement production capacity in 2013-14 was 340 million tonnes.

On 30 March, the Competition Commission of India (CCI) gave its nod for the Indian part of the merger between Holcim and Lafarge. It has also directed Lafarge to sell two of its assets—the Jojobera plant in Jharkhand and the Sonadih plant in Chhattisgarh to avoid the adverse effects of the proposed combination on competition in the grey cement market in the eastern region. The CCI order does not mention any sale in the RMC business.

In a notice in November sharing details of the proposed combination in India, Lafarge and Holcim had said that the RMC market is highly competitive and characterized by low barriers to entry.

“The proposed transaction will not lead to the removal of a vigorous and effective competitor as most aggressive players in this business segment are the localized players and operate with small- to medium-sized RMC plants and compete with the larger players such as Holcim and Lafarge more aggressively," the statement said.

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Published: 24 Apr 2015, 12:19 AM IST
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