SWOT Analysis

SWOT Analysis of Lafarge-Holcim

by Sadnan Bin Sattar

SWOT Analysis of LafargeHolcim

The Strength of Lafarge Holcim

Completion of the Buyout of Holcim Cement: LafargeHolcim Bangladesh has completed the buyout of 100% shares of Holcim Bangladesh Limited with the remittance of BDT 5,047.82 million. With the help of this acquisition, LafargeHolcim Bangladesh’s production capacity has increased a lot. Moreover, this company has a unique combination of production facilities with the only clinker production facility in Bangladesh and four grinding plants all over the country.

Largest Investment: LafargeHolcim first came to Bangladesh in the late ’90s. LafargeHolcim Bangladesh is the largest Swiss investment in Bangladesh. Both the French company, Lafarge Group and Cementos Molins Group of Spain invested together in the $400 million project in Chatak, Sunamganj. This project came into reality with the help and support of IFC and ADB. These two were equity partners along with two international financial partners such as the German Development Bank and the European Investment Bank. About $100 million were invested by the Holcim Group of Switzerland in grinding in Bangladesh.

Highest Clinker Production: LafargeHolcim Bangladesh produces clinker with a large number which accounts for about 20% of the country’s needs. They have the production of around 1.4 million tons of clinker in their project at Chatak, Sunamganj. The main and basic raw material is limestone in order to produce clinker. The other cement industries of Bangladesh import grinder clinker since they do not have commercially extractable limestone. Whereas LafargeHolcim Bangladesh (LHB) is the only private cement company in Bangladesh that owns a limestone quarry in Meghalaya, India through its subsidiary in India. As a result, LHB is saving about $40-$50 million per year for the national exchequer of Bangladesh

A Blend of Shareholders: It is auspicious for LafargeHolcim Bangladesh to have a blend of both national and international shareholders. As a result, the international shareholders of LHBL help the company to bring in technological and management expertise. Whereas, the local cement companies lack behind in this prospect.

Holds Second Spot in Market Share: The acquisition of Holcim by Lafarge Surma will help both companies to dominate in the cement industry in the domestic market. After the completion of the acquisition, LafargeHolcim Bangladesh holds the 2nd place which is 11.8% in the domestic market share according to a report in November 2018.

New Plastering Cement: According to Rajesh K Surana, chief executive officer of LafargeHolcim Bangladesh, this company brings plastering cement which will cover a larger surface area by using less cement. This new invention will save a higher significant cost and energy. It will take a shorter application time with efficiency and quicker construction. Plastercrete will be beneficial for masons and this will ensure better workability, consistent quality, and smoother walls.

The Weaknesses of LafargeHolcim

Gross Margin Dropped: Since the global clinker price had declined gradually, LafargeHolcim Bangladesh had to lower its clinker price too. As a result, the company’s gross profit margin had fallen down below its threshold. LHBL has no control over the price of the clinker globally and for this reason, this is one of their challenges to keep the gross margin stable.

Gas Price Hike: According to a report of 2018,State-run Jalalabad Gas Transmission and Distribution Systems Ltd (JGTDSL) has sought to increase the tariff of natural gas which was needed for LafargeHolcim Bangladesh to run its power plant. For the record, the company has a long term fixed-price contract with Jalalabad Gas Company as per which LHBL is supplied with 16 million cubic feet or 435,129 cubic meters natural gas per day approximately. If that decision is approved, factory overhead & gas price will increase which will affect the business negatively. LHBL has no control over increasing the tariffs and we can take this into account as one of their weaknesses.

Of all the weaknesses, these two weaknesses seem bigger in the long run. LafargeHolcim Bangladesh needs to get over these weaknesses.

The Opportunities for LafargeHolcim

Geocycle Program Launched: This is a waste-management service offered by LafargeHolcim Bangladesh. UNEP (United Nations Environment Program) has recognized this program as a cost-efficient and environmentally preferred approach compared to other waste management options. These advantages can be turned into opportunities for LHBL’s industrial and commercial customers from different sectors. These opportunities will also improve environmental performance, achieving their sustainability targets and enhancing their reputation and brand.

Leading Building Material Company: LafargeHolcim Bangladesh has a product portfolio with a wide range of services and products to offer. Moreover, they have the opportunity to provide customized products according to customer’s requirements. These will lead them to become the leading building material company in terms of quality products and services.

World-Class Business Organization: LafargeHolcim Bangladesh has become the best in a business organization to work in. LHBL is becoming the employer of choice for the talented professionals of Bangladesh because of their world-class opportunities for learning and development for all.        Besides these facts, there are few other sectors that LHBL can take into account as their opportunity to expand the business. Such as:

  • Urbanization
  • Real Estate Development
  • Government Projects etc.

The Threats for LafargeHolcim

Increased Competition in Industry: Most of the local cement manufacturing companies are expanding their business in Bangladesh and the cement market in Bangladesh has been experiencing double-digit market demand growth. It is also seen that an intensely competitive environment in the industry is increasing. Furthermore, fast-moving local grinders are entering the markets which will intensify the competition and challenge LHBL.

Risk in Cross Border Operations: LafargeHolcim Bangladesh’s major risk remains in foreign operations. If there occurs any interruption in limestone supply from its Indian subsidiary company then it will affect LHBL’s gross margin.

Turnover is in Declining Trend: Since the price of the clinker declined in the international market, it led the company to drop the prices of cement which resulted in fierce price competition. As a result, the turnover of this company is in a declining position since 2015 according to a report.

Cement Capacity Surplus Market: Bangladesh is a cement capacity surplus market. The local grinders are moving fast and they are adding capacity which will intensify the competition further in the market to capture volume shares. And this will result in pressure on price. The advancement of the local players has made the market very competitive.

Besides these, inward remittance fell, local companies which are grabbing the top slot of the industry by operating in economies of scale and with deft marketing strategy created threats for LHBL.

Related: Advantages of Foreign Direct Investment & SWOT Analysis of GrameenPhone

Reference Links

  1. http://ibtbd.net/rajesh-k-suranadirector-ceolafargeholcim-bangladesh-ltd/
  2. http://www.ilslbd.com/research_reports/Equity%20Note%20-%20Lafarge%20Surma%20Cement%20Ltd.%20-%20October%202017.pdf
  3. http://www.eblsecurities.com/AM_Resources/AM_ResearchReports/EquityReport/Equity%20Valuation%20Report%20on%20LafargeHolcim%20Bangladesh%20Limited.pdf
  4. https://www.thedailystar.net/business/lafargeholcim-brings-new-plastering-cement-1573621
  5. https://www.globalcement.com/news/itemlist/tag/LafargeHolcim%20Bangladesh
  6. https://www.lightcastlebd.com/insights/2019/03/20/cement-in-bangladesh-building-a-concrete-future

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