Cementing Deals

Updated: Jun 27 2003, 05:30am hrs
After the massive Grasim-Larsen & Toubro deal, Indias cement industry is abuzz with talk of further consolidation. The dramatis personae include not just the domestic biggies but also foreign majors which seek a bigger stake in the worlds second largest cement industry. The latter may be targeting the south-based cement units, but the pace of further consolidation obviously depends on a favourable pricing scenario for acquisitions. Towards this end, the discrepancy between the asking price and the price willing to be paid by buyers must be shortened considerably. Instead of continuing to fight for the smaller crumbs while top-of-the-line players like Grasim, Gujarat Ambuja-ACC and few others corner larger market shares, it would be better if the small players lower their expectations and take advantage of the new winds of consolidation blowing through the industry. As the Grasim-L&T deal indicates, there is a solution to every complex problem and therefore, the existing Rs 25-30 crore gap between the buyers willingness and sellers expectations needs to be significantly reduced.

Clearly, the scenario in Indias cement industry is ripe for further consolidation. A building boom is in the offing and construction will be the next big wave in the country not just of urban housing and commercial complexes but also of the Prime Ministers favourite Golden Quadrilateral and national highways linking the entire nation. And then there is vast scope for a rural housing boom with rising incomes. Fruits from all this and much more will be reaped by players who benefit from consolidation. In any case, the industry with 53 operating companies and 118 manufacturing facilities is certainly too large and fragmented for consumers to benefit from economies of scale and booming demand. Even globally, demand for cement is said to be rising at an annual average of around three per cent, wherein the export market is widening, with the expanding European Union of 25 countries and over 500 million people. The United States remains the worlds largest cement importer, while Chinas continued economic boom is resulting in over 6.5 per cent annual growth in cement demand. Only with scale economies can such a growing demand be met. Obviously, the highly fragmented smaller firms will not be able to participate and be competitive in such conditions only underscoring that further consolidation in the industry is imperative.