Smaller cement players likely to sell out as big boys out to buy market share

• Cement sector looks at consolidation as large players look at increasing market share through M&A.
• Smaller manufacturers may find it hard to compete against big integrated groups like Adani that can sharply lower production costs.
• Adani Group looks to increase cement capacity from 67.5 MTPA to 140 MTPA by 2028.
• as big boys out TO buy marketshare

The cement industry is headed for a lot of action in the coming years because the big boys of the sector are on the prowl. When the second largest cement manufacturer announces that it wants to increase capacity from 67.5 million tones per annum (MTPA) then it is clear that the name of the game is acquisition. After announcing the acquisition of Sanghi Cement from Ravi Sanghi and family by Ambuja Cements, Karan Adani, son of billionaire Gautam Adani, said: “Ambuja’s goal is to take capacity to 140 MTPA by 2028 is well on track and with this acquisition (Sanghi Cement) it will be achieved ahead of time.”

After Holcim sold its cement business in India to the Adani Group, it was apparent that the sector was headed for a shakeout. A decade ago, the sector was battling low utilisation levels due to overcapacity and now consolidation is underway as JSW Group, Ultratech and Adani-controlled ACC and Ambuja Cements look at dominating the sector. Given that power and logistics are the largest components of any metals and materials business, it makes sense for the Adani Group to cement business as logistics and power are the two big costs in this business.

Mergers and acquisitions in the cement sector have gained steam again, with multiple assets exchanging hands post Adani-Holcim deal last May, says Jefferies. The foreign investment research firm, says: “Notably, acquirers have avoided overpaying for assets (with the last two deals at $70-75/t). With top players wanting to maximise capacity share amid healthy growing demand, a rush of expansions and M&As should continue to re-shape the industry. Through M&A, buyers add readymade capacity, scale, faster access to markets, and reserves.” While acquisition of Holcim’s India cement business was a big deal, there have been many smaller deals too in the space. Some others that got acquired include Century, JPA, Lafarge, Reliance Cement, while others like Binani, Kalyanpur, Murli went through the NCLT process before changing hands.

Market is abuzz with news of some other listed cement players looking at merging with the bigger players, as competitive intensity is set to increase. With infrastructure major like the Adani Group using its other businesses to support the cement business, cost of production will come down. In fact, Adani Group CFO Jugshinder Singh has talked in the past of ACC and Ambuja becoming the lowest cost producers of cement in India.

Given that India is seeing a boom in infrastructure, consumption of cement will increase and if existing players were to create new assets or greenfield assets then it would take them at least 5-7 years. With acquisition the journey can be drastically cut shot and market share gains can come overnight. Investment bankers say that the smaller regional cement players would look at exiting the sector and sell out in the face of tough competition from bigger and more efficient players like the Adani Group.

While acquiring Sanghi Cement, Karan Adani said that the group’s vision was to produce lowest cost clinker in the country at Sanghipuram and then transport clinker as well as bulk cement through coastal route to the market of Saurashtra, South Gujarat, Mumbai and Mumbai Metropolitan region, Karnataka and Kerela. He added: “Synergy with the assets of Adani ports will help us accelerate in the implementation of this strategy. With the right implementation we are very confident that we would be the lowest cost supplier of cement in all these markets.” It would be hard for any small regional player to compete with such backward linkages and keep costs low.