In the midst of buyouts of Indian firms by foreign companies, home-grown JK Cement Ltd is keen to add a capacity of 2 m tonnes.
MUMBAI: In the midst of buyouts of Indian cement firms by foreign companies, home-grown JK Cement Ltd is keen to add a capacity of around 2 million tonnes (mt) through the inorganic route.
Going by sources, the Rs 900-crore company is considering an acquisition next fiscal and may even consider diluting a substantial portion of its equity depending on the value it gets from the target firm.
Promoters’ holding in the company is currently at 62%, while financial institutions and the public hold the rest. In the next two years, internal accruals and cash in hand could give it about Rs 550 crore, assuming cement prices do not fall.
JK Cement has an annual capacity of 4 mt for grey cement and 0.4 mt for white cement.
A K Saraogi, CFO, J K Cement, told DNA Money, “The company is not selling any kind of stake to any foreign company, but we are looking for acquisitions and may consider diluting substantial portion of equity depending on the value.”
J K Cement is amongst the top four cement players in northern region along with ACC, Grasim, GACL and also the second largest player in white cement market after Grasim.
Analysts said acquisition at this point of time will definitely help J K Cement as demand is growing and the demand-supply mismatch will continue to be around 5%.
Moreover, Commonwealth Games will lead to an additional demand of 7 mt by 2010.
Being a prominent player in the North, J K Cement’s primary markets are Haryana (18.2% market share), Delhi (13.4%), Rajasthan (11%) and Punjab (4%).
The Indian cement market is the second-largest in the world with a domestic annual consumption of 135 mt and an installed capacity of 160 mt and the overall cement demand in India is expected to grow at a rate of 9% for the next five years.
On the other hand, the size and potential of the industry has drawn the attention of most global majors with Lafarge, Holcim Ltd, Italcementi and HeidelbergCement establishing a presence in India.
Cement demand is derived from housing, infrastructure and industrial sector. The housing sector accounts for 65-70% share of total cement demand and will continue to remain a major contributor to the industry.
For the last five years, domestic cement demand grew at a CAGR of 8.5%, while the capacity grew at 6.6%. The industry achieved the highest ever capacity utilisation of 94.3% in FY06, indicating marginal capacity addition as compared to demand growth.
Space to play
For the last five years, domestic cement demand grew by 8.5% per year, while capacity grew at 6.6%
Overall cement demand is expected to grow at 9% for the next five years.
Housing sector accounts for 65-70% share of total cement demand.
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