Adani's foray expected to trigger consolidation in cement industry

Adani, Ultratech, Dalmia Bharat, Shree Cement to buy smaller companies, say analysts

With the cash-rich Adani group aiming to become India's biggest cement maker by 2030, the Aditya Birla group-owned UltraTech, which is currently India's top cement firm, is expected to face the heat. Both groups might try to acquire smaller rivals in the cement industry, say industry analysts.

The Adani family acquired all of Swiss cement major Holcim's 63.11 per cent stake in Ambuja Cement, which has a 50.05 per cent interest in ACC, along with Holcim's direct stake of 4.48 per cent in ACC for $6.4 billion in cash. The Adanis also announced that they would invest Rs 20,000 crore more in Ambuja Cements to increase their stake. Ambuja and ACC have a combined installed production capacity of 67.5 million tonnes per annuam (mtpa) and also own the strongest brands in India.

UltraTech, on the other hand, has a capacity of 120 mtpa and plans to invest Rs 13,000 crore to increase its capacity to 160 mtpa by 2027.

Apart from expanding capacity, there may be an acquisition of 45-50 mtpa cement capacities over the next 2-3 years by top companies. “Many regional players have not added capacities over the past few years, and have lost market share. A few players are finding it difficult to pare their leverage and may be willing to exit the cement business at good valuations,” analysts with Motilal Oswal Financial Services said.

“Over the past one month, we have seen a 5-37 per cent rise in cement stocks, barring a few stocks such as Ultratech, which have underperformed off late. Rising hopes of higher consolidation in the Indian cement sector are behind the recent run-up in stock prices,” the analysts said.

India's No. 3 cement firms, Shree Cement and Dalmia Bharat, are also planning to expand capacities both organically and inorganically. Based on organic capacity expansion announcements by cement players till date, the top five players will continue to register a higher installed capacity growth of 8 per cent till 2025 as compared to three per cent for the rest of the industry, analysts said.  

Consolidation in the industry will boost pricing power, synergies in the form of cost reduction and operational efficiency, and cross branding for the acquirer. For instance, Ultratech successfully integrated the cement brands of acquired companies like Binani and Century Textiles under the UltraTech brand in the majority of the markets it operates in. Similarly, Nuvoco Vistas Corporation, now owned by Nirma group, launched ‘Double Bull’, a brand of the erstwhile Emami Cement, a eastern India player, in the north Indian markets. Dalmia Bharat also launched its most trusted brand ‘DSP’ in Bihar from Kalyanpur Cements which was acquired under the IBC process, and Birla Corporation, now owned by the Lodha family, re-branded the Reliance Cement brand into an MP Birla Group brand in all the markets that it operates in.