Cement consumption in India is expected to grow by 50 percent in the next five years, which will further fuel the consolidation of the larger market players, says a Moody’s report. India’s cement consumption was 445 MMTPA (million metric tons per annum) in FY24, which is expected to grow to 670 MMTPA by 2030. The leading cement companies will match the demand through the acquisition of smaller cement companies, particularly the companies based in South India, the report says.
The report adds that cement demand in the country is expected to see a 6 to 7 percent annual compound annual growth rate (CAGR) towards the end of the decade. This increase in cement demand will be fuelled by the infrastructure spending by the government and an increase in housing needs.
Acquisitions to continue
In the last five years, the larger market players in the cement industry, with a pan-India presence, have been on an acquisition spree. Particularly, the two companies, Ambuja Cement of the Adani group and Ultratech Cement of the Aditya Birla group, have each acquired 5-7 smaller cement companies.
Overall, the ten biggest players in the cement industry have acquired about 140 MMTPA of cement capacity in the last five years from the smaller cement companies throughout the country. This capacity acquisition is valued at $10.5 billion by Moody’s.
The Moody’s report suggests that the acquisition of smaller cement companies, which have low profitability and a weak capacity utilization, will continue for the next half a decade. The larger market players are eyeing South India for new acquisitions as it has both large large number of regional cement companies and a high capacity.
There are about 70 small cement-producing companies in South Indian states, which have an installed capacity of over 2000 MMTPA. Compared to companies in North and East India, which have 150 MMTPA capacity, the companies in South India are most exposed to the increasing competition and acquisition from the pan-India companies.
Squeezing margins
The report says that although there is going to be an increase in revenue for the cement companies, their profits could be squeezed due to regulatory changes. Currently, the average profit margin on cement stands at Rs 800 to 900 per tonne. However, the increase in the tax on the key raw materials like limestone could cut their profit by 15 to 20 percent.
Additionally, the cement industry heavily relies on coal and petcoke for its energy needs. Since India imports a substantial amount of coal and petcoke, any change in the import/export duties could hurt the profit margins of the cement companies.