IIPM EDITORIAL: D(c)emented?

Symbiotic promises abound...
Of the cross-border deals that have happened in 2008 so far,

Cement companies scored a close third in value terms (9%). And the $349 million deal between Lafarge India and Larsen & Toubro (L&T) – wherein the former acquired the Ready Mix Concrete (RMC) business of the latter – is only set to make the scale heavier for investments received by cement companies. There is however a bigger truth of symbiotic intentions. While L&T can avail of the huge funds to concentrate on its core businesses, the deal gives Lafarge a better shot at the emerging Indian market.

The enthusiasm in the Lafarge camp can clearly be heard with Bruno Lafont, Chairman & CEO, Lafarge declaring that, “With this acquisition, we are taking a pioneering step in the emerging Indian market and to develop a unique expertise in creating value in the Concrete business.” Payoffs are not hard to achieve with the Indian cement industry growing at 8-10% annually, and with its current annual capacity of about 165 MT (RMC forming 70% of cement consumed) .

The recent start-up of operations at Lafarge’s first Greenfield RMC plant in Raipur is followed by this acquisition of (L&T’s) 66 concrete plants, thereby giving the company a greater presence. With 25% domestic market share and a production capacity of 5.5 MT for 2008, the inorganic growth will surely complementing its strategic plan to double its pan-India presence over the five years. ”The deal is a well-thought out strategy for both L&T and Lafarge, where one is using the acquired entity’s market share and other, funds to focus on core competencies,” declares Pawan Burde, Analyst, Angel Trade. L&T, There are many challenges though; for Lafarge, progress may be marred by high capital costs requirements and long gestation periods, not to forget competitiors. Growth of the RMC penetration (which is hardly 4% in the construction sector vis-a-vis a higher 50% in other Asian markets) is another hurdle. In this age of diversification, L&T might just find itself moving against the tide. Companies across sectors are derisking their business through diversification; L&T might just be dangerously risking putting all its eggs in one basket.

For Complete I I P M Article, Click on IIPM Article

Source : IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative