Davos WEF 2018: Puneet Dalmia Wants Debt-Laden Binani Cements’ Assets, But Won’t Be Rash

Rising costs don’t make it easy to turn around assets, says Puneet Dalmia.

A worker carries a sack of cement under a conveyor (Photographer: Udit Kulshrestha/Bloomberg)
A worker carries a sack of cement under a conveyor (Photographer: Udit Kulshrestha/Bloomberg)

The Dalmia Bharat Group is interested in stressed assets of Binani Cements Ltd. due to their strategic location in north India but won’t bid very aggressively as it seeks to maintain its financial discipline.

“This is a strategic acquisition but we are also very returns-focussed,” Puneet Dalmia, group managing director, told BloombergQuint’s Menaka Doshi on the sidelines of the World Economic Forum in Davos Switzerland. “We’ll remain balanced in how we bid.”

Binani Cements, admitted for insolvency resolution by the National Company Law Tribunal, has generated interest from bidders. It has a 6.25-million-tonnes-a-year cement unit and a captive power plant of 70 megawatts in Rajasthan. Billionaires Rakesh Jhunjhunwala and Radhakishan Damani, Aditya Birla Group Company UltraTech Cements Ltd. and JSW Group are among the companies that have submitted bids.

Dalmia said all the six bidders for Binani Cement have been called for a second round of talks. That doesn’t mean he’d go overboard with the bid as the company also wants to maintain its debt levels.

“We may end the current fiscal with a 2:1 debt-to-Ebitda ratio. We don’t want to go beyond 3-3.5:1,” Dalmia said. “We have the firepower in our balance sheet to expand.”

The South-based Dalmia Bharat, which has a capacity of 9 MTPA, has over the years developed a strong capability of acquiring assets, integrating and turning them around, Dalmia said. It won’t be easy in this market to revive an asset and ramp up at the same time because of rising costs and margin pressures. “There is a cost push because of energy prices rising. Some of it can be passed on depending on the demand-supply scenario.”

Moreover, new investments in the cement sector don’t make sense. The industry is growing at about 6 percent with top players seeing an operating profit of around Rs 1,000 for every tonne of cement, Dalmia said. To get to double-digit growth, an ebitda per tonne of Rs 1,500-1,700 would be required. “At these prices, new investments are unviable.”

Even if the company fails to win the Binani bid, Dalmia said it would evaluate greenfield investment, especially in north India where capacity utilisation is at its best. That’s because such a project will take time to come on-stream and by then demand would be back, he said.

The government's affordable housing and infrastructure push has been the growth driver. The pain point has been the real estate sector which is still recovering from the triple shocks of demonetisation, Goods and Services Tax and the Real Estate Regulation Act.

Real estate is a big dampener (for cement companies). We see a massive shrinkage in the organised real estate.
Puneet Dalmia, Managing Director, Dalmia Bharat Group

Dalmia said the cement industry’s margins would rise slowly in the longer term as the industry consolidates from the NCLT resolutions and demand picks up. He expects the credit cycle to revive after September as banks clean up their balance sheets. New project announcements too may return after that, he said.