Cement News

Understanding the dynamics of consolidation in India’s cement sector

The theme of consolidation continues to remain relevant in the domestic cement sector even after Adani Group’s large acquisition of Holcim’s 67.5 million tonnes (MT) cement assets. In the last week of November, Ultratech Cement, India’s largest cement manufacturer, acquired 10.8 MT capacity of Kesoram Industries. It was the fourth major cement deal over the past one year. In the past seven years, there have been thirteen mergers and acquisitions in India’s cement sector. Large cement firms are becoming larger by acquiring more cement assets than just opting for greenfield expansion. ET explains why companies have shown high preference for the inorganic route and what lies ahead for the sector.

What is the trigger for Ultratech Cement’s aggressive push for consolidation?

In the twenty-third Annual General Meeting (AGM), Ultratech Cement’s Chairman Kumar Mangalam Birla said that the company plans to achieve a cement capacity of 200 MT. With this long-term vision in mind, Ultratech has completed four prominent cement deals in the past seven years. These include Jaypee Cement, Century Cement, Binani Cement and Kesoram Industries. In all, the company has added more than 53 MT capacity through acquisitions. These acquisitions have further strengthened the company’s dominant position in India’s cement industry. At present, the company has a cement capacity of 143.3MT How are cement firms expanding capacity?
At present, India’s cement sector has a total capacity of around 596 MT. Cement makers are expected to add close to 34 MT capacity in the next two-three years through organic route (companies expanding their capacity on their own). Analysts also estimate that cement firms may add 30-40 MT through inorganic route (either acquisitions or mergers) during the period.

Why is the inorganic route being followed by cement firms to expand?
According to analyst estimates, the average cost of setting up a million tonne of cement plant is close to US$100 million (around Rs800 crore). This works out to be $100 per tonne. In the past seven years, considering thirteen major cement deals, the average cost (measured in Enterprise Value (EV) per tonne) cement firms paid to acquire a tonne of a cement plant is close to $96. This shows that cement firms have been better-off in following the inorganic route of expansion. Expanding through an inorganic route saves the hassle of searching for a right location, acquiring land, and delays in regulatory approvals.

Are there enough cement assets for consolidation?
It is estimated that there is close to 165 MT of cement capacity with small and mid-sized companies. A few prominent names in this list are Nuvoco Vistas, The Ramco Cement, Birla Corporation, J K Cement, J K Lakshmi Cement and Sagar Cement. This shows that there is enough potential for more acquisitions and mergers in the industry. Hence, the theme of consolidation will continue to remain relevant for the next three to four years. How has the pecking order of cement capacity changed?
Ultratech Cement continues to maintain its leadership position with cement capacity of 143.2 MT. The second biggest player is the combined force of ACC and Ambuja, which amounts to 75MT. The third largest player is Shree Cement, which has close to 49.9 MT capacity. And the fourth largest player is Dalmia Bharat, which has cement capacity of close to 44MT. The share of these four large players in the sector’s total capacity has increased to close to 51% at present from 47.7% in FY23.

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