Adani-Holcim deal may trigger consolidation in cement industry: Experts

Expansion plans by most larger players despite glut in markets, fuel price-driven cost pressure and resistance from market to absorb higher cost may force weaker players out

The Adani-Holcim deal may trigger a wave of consolidation in the cement industry, say industry insiders and experts.

Most of the larger players have major expansion plans lined up even as major markets are in surplus. Add to it, the cost pressure on account of rising fuel prices and resistance from the market to absorb the higher cost and there may be a case for weaker players to look at an exit.

The domestic cement industry has witnessed significant consolidation over the past decade, pointed out Hetal Gandhi, director, CRISIL Research.

“Four of the largest players outside the Holcim group – namely Ultratech Cement, Shree Cement, Dalmia Cement (including group companies OCL and Dalmia Bharat East) as well as Nuvoco Vistas (erstwhile Lafarge India) used the inorganic route to expand capacities and increase market share from 26-27 per cent to 38-39 per cent between 2015 and 2022,” said Gandhi.

“With the entry of a new aggressive player in the market, the industry might see the next wave of consolidation.  While there is over 25 mtpa of stressed assets in the domestic cement industry, we are likely to witness capacity acquisition beyond the same as well,” said Gandhi.

It’s all about valuation, said a major cement player. “Some of the smaller units may come up for sale if the pricing is along the lines of Adani-Holcim,” he said.

According to an IIFL Securities report, the deal has been consummated at a premium to past deals. Its calculations suggest an EV/MT of US$170-180/MT for the Ambuja stake versus past average ranging at US$100-170/MT.

Ravinder Reddy, director at Bharathi Cement, pointed out that the South India market is having surplus capacity, with an average capacity utilisation of 50-60 per cent. “If they opt for inorganic growth through acquisitions, it will not create a difference. However, any greenfield expansion may affect the existing market dynamics.” Bharathi has a capacity of 5 million tonnes.

“South India market is having surplus capacity, with an average capacity utilization of 50-60 per cent.  If they opt for inorganic growth through acquisitions, new players may not create any difference.  However, any greenfield expansion may affect the existing market dynamics,” he said. Vishal Kanodia, managing director, Kanodia Cement, said that the acquisition of Holcim by the Adani Group would certainly consolidate the Indian cement industry in the future. Kanodia has a 2.8 MTPA capacity.

A major cement player also expressed concern about Adani’s proposed expansion plan. “They are looking at doubling capacity in five years. If it is through greenfield plants, then there will be surplus in the market.”

He pointed out the North, South and West of India markets were in surplus. Even without Adani in the play, cement players had lined up major capacity expansion plans. According to Gandhi, cement players have announced capacity expansion to the tune of 150-160 MTPA over the next five years (fiscal 2023 to fiscal 2027 both years inclusive). Though Crisil Research believes around 115-125 MTPA capacity is likely to be added over the period.

At least two major cement players said that the deal would not alter their expansion plans.

“Our growth plans remain unchanged. Right now, we have a capacity of 48 million tonnes and in four years’ time, we will be taking it to 70 million tonnes. But we are not pursuing any aggressive strategy for growth like acquisitions, it will be through internal expansion,” said H M Bangur, managing director, Shree Cement.

Bangur also pointed out that as far as concentration of the industry is concerned, there was no change. “Earlier too the ACC and Ambuja Cements combine was the second largest in the industry. So, we don’t see a change in market dynamics.” Shree Cement is India’s third largest cement player.

Another major player – looking to double capacity – said that its plans to expand through brownfield expansion were on track.

Industry dynamics

Cement players announced capacity expansion of 150-160 MTPA over the next five years

North, South and West India markets are in surplus, say industry sources

Over 25 MTPA of stressed assets in the domestic cement industry, according to Crisil Research