Heidelberg Cement prefers acquisition route rather than setting up a new unit as buyouts are getting attractive. Speaking to CNBC-TV18, Heidelberg Ashish Guha, CEO and MD confirmed that they are in talks with potential sellers to buy cement units in central India. It also said the talks have not led to any material development so far.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: With reference to the UltraTech Cement-JP Associates – do you think buying a company seems cheaper than setting one up
A: Everything has become a bit complex now from buying land to getting approval of 80 percent of owners, getting environment clearances – these all things have been becoming difficult in the last two years than it was earlier, so acquisition tends to be better.
Also, in the market there is no further additional supply of cement so consolidation happens through acquisitions. Therefore acquisitions are a better route in growing than creating more capacities now.
Q: Could you give us numbers on what is the exact replacement cost at this point or cost of setting up a million tonne cement plant?
A: It is difficult to give a number and it will depend from area to area. It first depends on the land price that one is acquiring. Plant and machinery is generally similar for everyone.
Setting up cost will depend on whether you are setting up a grinding unit somewhere else or within the location itself. So, there are whole of things and so difficult to say the exact cost. But in today’s dollar terms it should be around USD 120-130 per tonne which was around USD 140-150 per tonne when rupee was at 52/USD.
Q: Would you look to buy?
A: Yes we would if something interesting comes up.
Q: Are you actively looking for something?
A: Nothing yet in final stage but we are talking to few potential sellers because valuation becomes a huge deadlock within the Indian cement industry. We have been talking for years and nothing happens. Then suddenly a deal happens.
Q: So if you are looking to buy then how are you planning to fund the acquisition?
A: We have the group resource, so it may or may not be from Heidelberg Cements India Limited (HCIL) as such but it maybe from Heidelberg Cement group. We won’t saddle our balance sheet with more debt, which we cannot service. So if EBITDA is positive and is able to sustain the debt cost then fine we can look from here but otherwise we will look at group resource to acquire.
Q: In which region are you interested?
A: Central region is our first preferred choice for acquisition because 85-90 percent of our business is there. Then in west, east and north but in south we are not looking at currently.