The way ahead

Calcutta, June 11: Foreign firms are still vying to buy domestic cement companies, unfazed by the recent carnage in the stock markets.

The latest buzz in the deal street is that the SK Birla group is exiting from the cement business by divesting its stake in Mysore Cement.

The management is in talks with quite a few international cement companies to offload the entire promoters? stake in Mysore Cement.

?A number of foreign firms have shown interest in the company. The deal could be through within June-July,? sources said.

Mysore Cement, incorporated in 1958, has a capacity of 1.9 million tonnes (mt). It makes ordinary and pozzolona varieties of portland cement. It has plants in Karnataka, Madhya Pradesh and a grinding unit in Uttar Pradesh.

?Only foreign companies that are present in India would be interested in Mysore Cement?s small capacity of around 2 mt,? sources added.

Lafarge of France, Holcim of Switzerland and Italcementi of Italy have a significant presence in India.

The promoters? holding in Mysore Cement was 24.17 per cent on March 31, 2006. The successful bidder would have to make an open offer to buy an additional 20 per cent according to Sebi guidelines.

If this deal is struck, it would be the second Birla group company to be sold off to international players.

The KK Birla group had exited from the cement business by selling Zuari Cements to Italcementi last month.

The Italian firm paid Rs 600 crore to pick up the KK Birla group?s 50 per cent stake.

Observers said the Birlas would be offloading the entire stake if the valuation is right.

Zuari was sold at an enterprise valuation (EV) of $100 a tonne while the EV was $130 per tonne in the recent Andhra Cement-ICICI Bank deal where the latter picked up a 6 per cent stake at Rs 50 crore.

Analysts peg Mysore Cement at $72 a tonne by enterprise valuation. ?In most of the deals, acquirers are willing to pay more than the enterprise value. It will be surprising if this deal is stuck below $100 a tonne,? they said.

The stock market seems to have also got a whiff of the deal. On Friday, the Mysore Cement stock hit the upper circuit to close at Rs 36.80.