Thus far this has been the perception, but a look into what Lafarge has offered for various capacities of Blue Circle worldwide suggests that MNCs are picking up capacities quite cheaply in India, especially considering future growth prospects.

According to a report prepared by a leading bank, Blue Circle's overall cement capacity of 29.6 million tonnes has been valued at around $196 per tonne based on Lafarge's offer price. Of this, capacities in the US are valued at $250 per tonne, UK at $230, Canada at $240, Denmark at $210, Philipines at $180, Egypt at $120, Greece at $150, and Malaysia and Africa at $100 each.

Compare this with what Lafarge paid for its Indian acquisitions so far. Tisco's 1.73 million tonne cement plant was picked up for $72 per tonne and Raymond's 2.24 million tonne plant was acquired for $81 per tonne. As both these companies manufacture slag cement, the clinker capacity is lower than the actual production capacity (as slag is added at the grinding stage which increases output). Even the per tonne value adjusted for the use of slag works out to only around $100.

Italcementi's 50 per cent stake in the 1.7 million tonne Zuari Cements cost it $99 per tonne while the valuations doing the rounds for Blue Circle's offer for Manikgarh Cement are around $100.

These numbers look definitely on the lower side if one considers future growth prospects available in India vis-a-vis other countries. Cement consumption in India is witnessing double-digit growth and with the infrastructure and housing sectors holding huge promise, annual growth is expected to be of the order of 10-15 per cent in the years to come.

As against this the growth in cement consumption is more or less flat in most developed countries. The US and European markets are expected to see a growth of only two to three per cent till 2001 while Greece is estimated to post a five to six per cent growth. Despite this, capacities in these countries are valued significantly higher.

Malaysia's valuation is similar to India despite the fact that there are price controls. Price discounts there during the current year have been to the tune of 20-25 per cent. In fact, Blue Circle's foray into Malaysia (4.3 million tonnes) has been partially held responsible for its poor financials. Analysts describe Malaysia as a `potential black hole'. Africa too has the same valuation as India.

Countries which carry better valuations cannot also boast of technological superiority. Matured markets such as the US and Europe have not seen significant capacity additions in the last decade and many technological innovations have indeed been practised and adopted in India. India is among the low-cost producers of cement.

If at all a reason can be given for the poor valuations, it is fragmentation of the industry which is leading to price indiscipline and lower profits. Blue Circle's realisation per tonne of cement last year was $203 (Rs 8,932 per tonne) which is equivalent to Rs 180 per bag of 50 kg. The average realisation in India is anywhere between Rs 100 to Rs 150 per bag. Moreover, income net of taxes and duties in US and Europe is over Rs 3,000 per tonne whereas in India even the gross sales, in many places, is less than that figure.

But even this is changing with the rapid consolidation that is taking place in the country. In a couple of years only handful of players are expected to be in the field and price discipline is bound to come about. MNCs, it appears, are using the current profitability factor as a stick to beat down the valuations here.