Exiting concrete biz completely as it's not core: L&T

Lafarge has bought L&T's concrete unit for USD 349 million. YM Deosthalee, CFO of L&T said they sold the concrete business at an EV of Rs 1,480 crore. L&T is exiting the concrete business as it is not a core business.  

The transaction will be closed over a period of three months. L&T will use the funds from the concrete business sale for their power business and other units.

For Lafarge the acquisition will give estimated volumes of 4.1 million cubic meter in 2008 and will get approximately 25% market share after the acquisition. The acquisition will be earnings accretive from 2009.

Mike Glover, MD, Lafarge Aggregates & Concrete India said the acquisition has given them a platform from which to develop the ready-mix business further.

“This acquisition has given us the best possible platform from which to develop our ready-mix business further. There is huge potential for growth in the ready-mix industry, as a result of improving construction techniques, modern construction techniques and the need for more rapid construction techniques. In terms of the value that we have paid, we have a very disciplined approach to investment. We have to meet the requirements that we have in terms of how we invest. The need for ready-mix is driven by growth, the need to do things faster and more discerning clients,” he stated.

Excerpts from CNBC-TV18's exclusive interview with YM Deosthalee:

Q: Walk us through what kind of enterprise value that has been set out for this sale that you have made and what are your plans now in terms of the concrete side, are you exiting that space completely?

A: Yes the total enterprise value is Rs 1,480 crore and yes we are exiting completely as this is business is not a core business for the group and you are aware that about four years ago, we exited cement. At that time this was a relatively small business, we wanted to create some more value and exit after some time because we are today focusing now on our core engineering and technology business, so we signed the definitive agreement last night for selling this entire business to Lafarge.

Q: Where exactly you would be using this money? It’s a figure of about Rs 1,000 crore to Rs 1,500 crore, where will it be chanelized and also now that you are out of the commodity segment, what is going to be the focus area for you?

A: The closing of this transaction will take about three months and there are some other formalities to be completed and we will have to do all that and the money will flow in about three months from now. This money will be utilized for our other core activities. As you know we are expanding in power business, we are also constructing shipyards, we are increasing our presence in the gulf region and we are setting our AV engineering facility in Oman and we are also constructing a barge for our off-shore facilities, we have set up some new units in India and the current facilities in Hazira where we do our heavy engineering work are also being expanded. So it is basically for expansion of the existing activities and in addition to that, we are growing in the developmental project business where the government is offering projects on build on operate basis, so there also there are a lot of opportunities.

So this is the money which will be utilized partly for all these expansion plans.