Cemex-Murli deal may flop on valuation, Sebi glare

Mexican cement maker Cemex’s India entry plans have hit a roadblock again due to the higher valuation being sought by Murli Industries and the order of the Securities and Exchange Board of India (Sebi) on insider trading, according to two sources close to the development.

Murli has an existing capacity of 3 million tonne per annum (mtpa) at Chandrapur in Maharashtra and limestone reserves for the same, which it has been looking to sell off. It was in talks with Ambuja Cements and Italicementi for sale of the assets before Cemex entered the scene.

“Earlier, Murli was in talks with Ambuja. It was asking for $250 per tonne and after the third round of discussions, Ambuja walked away. Later, Italicementi did due diligence, but nothing worked out. Finally, they have been talking to Cemex. Murli has already rejected what Cemex has offered in the last four rounds of talks, so it is unlikely Cemex will take this deal seriously. Nothing is happening in the deal as of now,” a source said, requesting anonymity.

“The deal (with Cemex) is in the doldrums, first because Murli has been seeking higher valuation. In fact, most of the sellers are asking for 80-100% as the last 2-3 deals happened at that valuation,” said one person.

“But that is not the benchmark and assets also need to be considered. The last deal where France-based Vicat SA paid $220 per tonne to Hyderabad-based Bharathi Cement happened because the plant is new and there is a possibility of expansion; also, it has good limestone reserves. Murli’s limestone reserves are not of that great quality and you cannot take it out of Maharashtra. Also, the plant is not new. So, seeking the same kind of valuation is not fair,” this person said.

Murli is separately trying to put up two more plants in Rajasthan and Karnataka, which it will run on its own, the sources said.
An analyst from a domestic brokerage said, “International companies are quite sceptical of forging tie-ups with tainted companies and Sebi’s order on insider trading will impact the deal in a negative way.”

A senior industry expert who did not wish to be identified said Cemex has been aggressively seeking an Indian entry since early this year, though nothing has fructified yet.

The Mexican giant had offered around $150.3 per tonne to South-based Penna Cements, which it was courting in July, but Prathap Reddy, promoter of Penna Cements, declined the offer. Hyderabad-based Penna has an existing capacity of 4.7 million tonne and caters to markets in Karnataka, Andhra Pradesh, Tamil Nadu and Goa.

Emails sent to Cemex and Murli Industries remained unanswered, as did calls to a senior official of Murli group.

The world average for consumption of cement is close to 5%, whereas Indian consumption is at 8%.

To add to it, developed countries are stagnating. Even in India, the cement industry grew only 5% for first half of 2010-11 compared with 10% last year, which is expected to put pressure going further.

Major developed markets have been in stagnation for years now, while a few are fast degenerating (US grew 1%, Japan declined 1% and Russia declined 4% in the last 15 years).

The average payout for deals between 2005 and 2008 was around $168 per tonne as against $121 per tonne a decade before.