The next wave of consolidation in the cement industry is in the offing as companies are expanding manufacturing capabilities and scouting for acquisitions, while policy tailwinds are much in its favour.
As per industry estimates, the cement capacity in the country is expected to rise to 150–160 million tonne per annum (MTPA) over the next five years, while there are more than 25 MTPA of stressed assets in the country.
To start with, Adani Group — which closed its $6.5-billion acquisitions of Switzerland-based Holcim Group’s Indian assets last week — plans to double its cement manufacturing capacity in the next five years and emerge as the “most profitable” cement manufacturer in the country.
“India is the second-largest producer of cement in the world, our per capita consumption is just 250 kg compared to 1,600 kg of China. This is almost seven times headroom for growth. Furthermore, as several of the government programmes gather momentum, the long-term average growth in cement demand is expected to be 1.2-1.5 times the GDP,” Adani Group chairman Gautam Adani had said in a recent address marking the completion of the deal.
Jefferies said in a report that the current cash balance (`11,000 crore for combined ACC-Ambuja as of CY21-end), internal accruals and the additional fund infusion by promoters, will give the group enough of a war chest to scale up new expansions (organically or inorganically), in line with the aspiration to double capacity in five years.”
Similarly, UltraTech Cement is adding another 22.6 MTPA of capacity through a mix of brownfield and greenfield expansion plans. The Aditya Birla Group firm, which is the country’s largest with a current production capacity of 120 MTPA, had earlier approved a capital infusion of `12,886 crore for the capacity additions.
“Upon completion of the latest round of expansion, our company’s capacity will grow to 159.25 MTPA, reinforcing its position as the third-largest cement company in the world, outside of China,” its chairman Kumar Mangalam Birla had told shareholders in August.
Shree Cement, which has a production capacity of 47.4 MTPA (including overseas), intends to add another 80 MTPA by 2030. Dalmia Bharat is planning to expand cement capacity to more than 48 MTPA by the end of FY24 from the current 35.9 MTPA via both organic and inorganic modes.
India is the second-largest cement producer in the world, accounting for about 8% of global cement production with an estimated production capacity of 550 MTPA.
“We believe that cement capacity is set to expand by 150-160 MTPA over the next five years. The entry of a new player in the industry has prompted a spree of announcements by existing players in the industry as well, which is likely to drive the next wave of capacity additions. The majority of the planned additions are by the top five players who enjoy a healthy balance sheet and strong cash accruals, thus leading to a rise in the share of capacity of the top five players beyond 50%,” Hetal Gandhi, director at Crisil Research told FE.
Between FY13 and FY18, the industry witnessed a spate of consolidation, and now with the availability of a number of stressed assets such as that of Cement Corporation of India and Vadraj Cement, there are opportunities for companies mulling brownfield expansion, analysts said.
A “significant push” by the government to the infrastructure sector would also provide tailwind to core sectors such as steel and cement, they said.