The proverb ‘grass gets trampled when elephants fight’ is playing out in the capital-intensive cement sector.
The pitched battle between the Kumar Mangalam Birla-led Aditya Birla Group and newer entrant Adani Group has kicked off an unprecedented level of consolidation in the cement industry.
The market leader — Birla flagship UltraTech Cement — is way ahead of the second placed Adani Group’s Ambuja Cement-ACC combine in terms of production. However, it is leaving no stone unturned to widen the gap.
UltraTech Cement has an installed capacity of 152 million tonnes per annum (mtpa) and commands a market share of about 25 per cent. It has outlined a roadmap to expand its capacity to 200 mtpa with an investment of ₹32,400 crore by 2028.
On reaching the 150-mtpa landmark, group Chairman Birla described UltraTech’s scale and capacity footprint as unparalleled with its mix of integrated cement plants, grinding units, bulk terminals in 59 locations, and 307 ready-mix concrete plants.
It took 36 years to reach 100 mtpa capacity, while the next 50 mtpa was added in less than five years with an investment of around ₹32,000 crore.
On the other hand, the Ambuja Cement-ACC combine has 77 mtpa capacity and commands a market share of 15 per cent. The group plans to double the capacity to 140 mtpa by 2028.
In 2022, the cement industry was rattled by the entry of billionaire Gautam Adani through the acquisition of Ambuja Cement and its subsidiary ACC from Swiss company Holcim for a whopping ₹81,000 crore, including the open offer.
The Adani family recently upped the ante by pumping in ₹8,339 crore in the debt-free Ambuja Cement to raise its stake by 3.6 per cent to 70 per cent.
M&A spree
Amid the intense competition, several small and mid-cap players with installed capacity of 3-10 mtpa are set to cash out over the next 10 years. Both the market leaders are in a hurry to consolidate their lead. Of the eight large deals involving 45 mtpa cement capacity exchanging hands, the Adani and Birla groups accounted for three each.
In a bid that further strengthens its position at the top, UltraTech, as expected, acquired 32.72 per cent stake in India Cements for ₹3,945 crore from the company’s promoters and its associates.
It already held 23 per cent in the Chennai-headquartered cement major. The deal will raise UltraTech Cement’s capacity by 14.45 mtpa to 169 mtpa, widening its gap with Adani Group companies and strengthening its hold on the vibrant Tamil Nadu market.
Not to be left behind in the race, Bangurs-owned Shree Cement, the fourth largest producer, commissioned a 3-mtpa plant in Andhra Pradesh, taking its overall capacity to 56 mtpa. The Kolkata-based company targets 80 mtpa by 2028 by commissioning 13 more plants, including five this fiscal.
Parth Shah, Research Analyst, StoxBox, said the major consolidation drive in the cement industry is expected to improve margins in the coming days.
Further ahead, smaller capacities will be absorbed, thereby improving overall utilisation, he added.
Growing concentration
Backed by healthy demand, large cement companies are looking to increase capacity and maintain market share through organic and inorganic expansions.
Rating agency ICRA estimates the market share of the top five cement companies will rise sharply to 55 per cent by March next year from 45 per cent in March 2015.
Anupama Reddy, Vice President, Corporate Ratings, ICRA, said that in the last nine years there were 15 M&As in the cement industry, with an average cost of $80 a tonne, which is lower than the cost of setting up an integrated greenfield cement plant ($110–120 a tonne).
An asset block of 28 mtpa is up for acquisition and there will be more M&A deals as the large incumbent players vie to grow and maintain their market share, she said.
Strong demand
According to CRISIL Ratings, the cement industry plans to increase its capacity by 150-160 mtpa between FY25 and FY28, driven by demand from the housing sector, dedicated freight corridors, ports, and various infrastructure projects.
The trends suggest that industry consolidation will continue over the next decade, with the top five cement producers expanding capacity and gaining market share.
Budget 2024 reiterated the government’s focus on infrastructure development with a ₹14.8 lakh crore allocation, up 16 per cent from ₹12.8 lakh crore in FY24.
There is also a special focus on infrastructure development in Bihar (eastern region) and Andhra Pradesh (southern region), besides an emphasis on affordable housing across the country.
Ashutosh Murarka, Research Analyst, Choice Broking, said the organic and inorganic expansions by the large cement players will boost pricing discipline and improve profitability in the long run.
However, the valuation of cement stocks are high as the price-to-earnings ratio of several cement companies remains elevated at 38-40 times considering the industry’s projected growth of about 8 per cent in the coming years, he added.
That the cement industry’s glory days are ahead is, perhaps, set in stone!