The consolidation in the cement sector is growing at an alarming pace. The top four companies – UltraTech, Ambuja, ACC, and Shree Cement – are expected to command 60 per cent of the production capacity in the next two years, compared to 50 per cent logged last fiscal.
CareEdge Ratings said these companies had a consolidated market share of 35 per cent in FY12 which has strengthened to 50 per cent last fiscal year and is likely to be about 60 per cent by FY26-end.
The industry has seen about 18 deals since April 2014, with almost 195 million tonnes of capacity changing hands. Of this, close to 116 mt changed hands between FY23 till July 2024.
In fact, the 40 per cent capacity share gain was through acquistion and inorganic expansion, largely of distressed assets. Inversely, the capacity market share of the next large 25 has reduced to 39 per cent from 46 per cent in FY12. The remaining small cement companies’ market share has dipped to 11 per cent in FY24 from 19 per cent in FY12.
In further consolidation, CareEdge Ratings believes M&A activities for nearly 60 million tonnes of cement capacities may happen over the medium term.
The cement industry achieved a decadal high in organic capacity addition last fiscal year, with nearly 45 mt of new capacity taking installed capacity to 641 mt. This is against an average of 25-30 mt of average annual capacity addition over the last decade. The fragmented southern market offers a larger base for consolidation despite recent activity seen with Penna, Kesoram, and India Cements deals.
Ravleen Sethi, Director of CareEdge Ratings said the competitive gap between the top and mid-sized players could increase further due to the bigger players’ wider presence and better cost efficiencies.
In the past, there has been stress on few players, particularly in the mid-sized space, where the capex plans of these companies coincided with weaker pricing periods, and pushing them to exit or sell their respective businesses to the large players, he added.
Prices firm
Ashutosh Murarka, Cement Analyst, Choice Broking said the industry consolidation could drive prices higher, especially when cement demand in India is expected to go up due to infrastructure projects.
In the past 15 months, market share of large players has surged to 55 per cent with companies targeting the under supplied southern market to improve financial performance and capture additional market share, he added.
Palka Arora Chopra, Director, Master Capital Services said the consolidation has already led to a decline in capacity utilisation to 80 per cent in the June quarter following significant capacity expansion and demand increasing at a slower pace of low single digits.
Backed by the Budget allocation of ₹11 lakh crore for infrastructure, she said cement demand is expected to pick up and lead to 5-7 per cent volume growth in second half of this fiscal year.