Cement gets a realty look from pvt equity investors

NEW DELHI: One of the biggest beneficiaries of the present real estate boom seems to be the cement sector. Courtesy the huge growth generated by the boom, the sector is now witnessing a revival. This has led to a huge interest from private equity players in the sector.

The sector, in the last six months, attracted private equity investments to the tune of $801m. Compare this to automotive, FMCG and chemical and fertilisers, which together had investments of $840m during the same period. “The cement industry is clearly witnessing a strong revival on the back of rising infrastructure and real estate spending.

By attracting PE investments, companies in this sector are able to restructure their old, high-cost debt and expand operations to capitalise on this boom effectively,” said Venture Intelligence Founder & CEO Arun Natarajan. Typically, companies in the cement sector were debt-ridden.

However, the PE investments shows that players are picking up stakes even in these companies. In these deals, funds pick up significant stakes in these debt-ridden companies and also take a major part of the debt. While the biggest deal during this period is the $470m paid by Holcim to acquire a 14% stake in Gujarat Ambuja Cements, there have been about six major deals in the last six months.

Some of the prominent deals in the cement sector include the $25-m investment made by Actis in Dalmia Cements in March. Then, there was the $133.33m invested by Ciments Francais in Zuari Cements to pick up 50% stake.

On the other hand, during the first six months of ’06, while there were deals worth $203m in the automotive sector, $267m in the chemical and fertilisers sector, in the fast moving consumer goods sector deals were worth $376m, according to the data provided by Grant Thorton.

“Sectors like chemical and fertilisers and automotive have a limited demand compared to cement where the real estate boom has lead to enormous demand. With over 500 malls coming up in the next two years and many infrastructure projects the demand is going to increase further,” said an analyst.