AFRICA: ARM to sell stake in fertiliser unit and focus on cement

Athi River Mining will restructure its business with the sale of its fertiliser section as it races to focus on the lucrative but increasingly competitive cement market.

The firm makes fertiliser, lime, sodium silicate and cement which generated seven per cent, nine per cent, 21 per cent and 53 per cent of its Sh5.1 billion revenue last year.

ARM says it is in talks with a private equity firm for the sale of a 30 to 50 per cent stake in its fertiliser business that it has earmarked for a separate listing at the Nairobi Stock Exchange (NSE) in three to five years, Pradeep Paunrana, the firm’s managing director told Reuters in an interview in Washington.

This will give the management time and cash to beef up the cement business, hoping to grow it five fold over the next five years in a business environment where cement consumption is rising amid price wars.

The cash will also be used to build a new fertiliser plant, allowing annual production to increase from 15,000 to 150,000 tonnes.

“Ultimately in five years, if we go to 150,000 tonnes we’d be looking at a company with a market cap of $200 million,” said Mr Paunrana.

ARM plans to increase cement sales to 1.75 million tonnes a year in 2015 from an estimated 360,000 tonnes in 2010.

But competition from new entrants such as CATIC of China, Mombasa Cement, and Devji Steel as well as enhanced production by existing players has set the stage for a vicious battle for market share.

Already, the local cement market is gripped with a price war that has in part delivered losses and reduced players’ market share.

For instance, the price of a 50kg bag of cement fell 10 per cent this year following the price wars.

This saw firms such as East Africa Portland Cement Company (EAPCC) grow sales but sacrifice margins due to heavy discounting, while Bamburi Cement lost market share and revenues as it was reluctant to cut prices by huge margins.

Sales drop

Bamburi Cement saw its sales drop to Sh13 billion from Sh16.2 billion in the six months to June — leading to a 23 per cent drop in profits.

EAPCC made a Sh292 million loss in the year to June, compared to a profit of Sh1.8 billion in the same period a year earlier despite growing its revenues by Sh1.3 billion to Sh9.4 billion.

This market condition forms part of the reason why ARM is keen on spinning off its fertiliser business to allow it focus on the cement business as rival cement firms plot to reverse their poor show in 2010.