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Finance, Accounting and Control Case Study

Case Title:

The Valuation of Business Division: The Case of L&T Concrete

Publication Year : 2010

Authors: S Chakraborty, S Chhaochharia and K Suresh

Industry: Building Materials and Construction Equipment

Region:India

Case Code: FAC0051IRC

Teaching Note: Not Available

Structured Assignment: Not Available

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Abstract:
On 15 May 2008 Larsen & Turbo Limited (L&T) sold its ready mix concrete (RMC) business, L&T Concrete to Lafarge India for INR 14.8 billion. The sale was affected through a transfer of business along with all assets, liabilities and the employees connected with the RMC Business. The price of RMC business seemed to be quite low considering its position in RMC segment with a market share of 25%, having assets of INR 4 billion and revenue of INR 7.65 billion in 2007. Moreover, the industry analysts felt that though RMC constituted only 3% of the total cement business in 2007, its growth opportunity was enormous. Thus, the question remained, whether L&T's management had properly valued its RMC business?

Pedagogical Objectives:

  • To understand the Indian cement and ready mix concrete industry.
  • To understand the valuation of a business division.

Keywords :  Cement, Ready mix concrete (RMC), Larsen & Turbo Limited, Lafarge India, Growth rate of Indian cement and ready mix, Cost structure of the Indian cement and ready mix concrete industry, Major players in the Indian cement industry, Indian ready mix business, Growth of ready mix business in India, Site-mixed concrete, Debt equity ratio, Working capital as a percentage of sales, Effective tax rate, Dividend per share, Earning per share (EPS)

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