Adani’s purchase of Holcim assets triggers next wave of consolidation

The next wave of consolidation in the cement industry is in sight as companies expand manufacturing capabilities and seek acquisitions, while political tailwinds are largely in its favour.

According to industry estimates, cement production capacity in the country is expected to reach 150-160 million tonnes per annum (MTPA) in the next five years, while there are more than 25 MTPA of assets under tension in the country.

Also Read: Adani to Double Cement Production Capacity to 140 Million Tons in 5 Years

For starters, Adani Group – which completed its $6.5 billion acquisitions of the Indian assets of Switzerland-based Holcim Group last week – plans to double its cement manufacturing capacity over the next five years and become the the country’s “most profitable” cement company. .

The group plans to double the combined cement manufacturing capacity of Ambuja Cements and ACC to 140 MTPA from the current 70 MTPA.

“India is the second largest cement producer in the world, our per capita consumption is only 250 kg against 1,600 kg for China. That’s almost seven times the growth margin. In addition, as several government programs gain momentum, the long-term average growth in cement demand is expected to be 1.2 to 1.5 times GDP,” said Adani Group Chairman Gautam Adani. , in a recent speech marking the conclusion of the agreement.

Jefferies said in a report that the current cash balance (`11,000 crore for ACC-Ambuja combined at the end of CY21), internal accruals and the injection of additional funds by promoters will give the group sufficient of war chest to scale up new expansions (organic or inorganic), in line with the aspiration to double capacity in five years.

Also Read: Holcim Acquisition to Add Rs 40,000 Crore, Adani Group Debt to Rise to Rs 2.6 Trillion: CreditSuisse

Similarly, UltraTech Cement is adding an additional 22.6 MTPA through a combination of brownfield and greenfield expansion plans. Aditya Birla Group, which is the largest in the country with a current production capacity of 120 MTPA, had previously approved a capital injection of 12,886 crore for capacity additions.

“After the completion of the latest phase of expansion, our company’s capacity will increase to 159.25 MTPA, strengthening its position as the world’s third-largest cement producer, outside of China,” its chairman Kumar Mangalam Birla 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 plans to expand cement capacity to more of 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 around 8% of global cement production with an estimated production capacity of 550 MTPA.

“We expect cement production capacity to increase by 150 to 160 MTPA over the next five years. The entry of a new player into the industry has also prompted a flurry of announcements from existing players in the industry, which is expected to drive the next wave of capacity additions. The majority of the planned additions are for the top five players who benefit from healthy balance sheets and strong cash accumulations, leading to an increase in the capacity share of the top five players beyond 50%,” said Hetal Gandhi, Director of Crisil Research. said FE.

Between FY13 and FY18, the industry saw a wave of consolidation, and now with the availability of a number of stressed assets such as those from Cement Corporation of India and Vadraj Cement, there are opportunities for thinking companies. to brownfield expansion, analysts said.

A “significant push” by the government in the infrastructure sector would also bring a tailwind to key sectors such as steel and cement, they said.

Comments are closed.