India’s cement production has been increasing at a slow pace of 4.7% as compared to growth in capacity addition which was at 8.4% in the last seven years. The industry is yet to recover from the double whammy of excess capacity and slow demand growth. Hence, the utilization rates continue to dip further, and the last two years have registered one of the lowest capacity utilization rates for the overall industry in a decade. However, with the pace of new capacity addition slowing down and improvement in the demand and supply scenario, utilization is likely to increase to more than 70% levels soon. Cement demand is expected to be driven by increased spending in the infrastructure segment especially roads, railways, metro rail projects and the government’s focus on affordable housing.
Over the last five years, new cement projects worth ₹70,000 crores have been announced, which translates to approximately 240 million tons of cement and clinker capacity addition. However, due to weak demand, the implementation of these projects has been delayed. Further, with land and raw material (limestone) availability challenges, the cement industry has witnessed more than ₹50,000 crores worth of M&A in the past five years. The current M&A activities have been driven mainly by the large domestic players, as they look to gain dominance, expand their geographic footprint, and hope to compete in the backdrop of improving demand outlook effectively.
Nuvoco Vistas Corp. Ltd., a Nirma group company that is currently involved in acquiring Emami Group’s Cement assets had in the past, acquired Lafarge India’s assets with a deal value of ₹9000 crores. Similarly, Ultratech’s acquisition of Jaypee Cement and Dalmia Bharat acquiring Odisha Cement are some of the examples of many mergers that have led to the exit of prominent names and increased the market share of the top five players. Currently, the top five players account for more than 60% of the total installed capacity. Further consolidation is expected to happen but will mainly be smaller deals that help large and medium players diversify into new geographies.
Southern and Western India has the largest concentration of cement plants/installed capacity and are highly competitive markets. While Nirma’s current deal with Emami and Lafarge acquisition in the past are both centered in Eastern India, it strategically prepares the company to tap into the North-Eastern market which is witnessing a construction boom.
For more information on this topic or to schedule an interview/interaction with our spokesperson, please email Srihari Daivanayagam at [email protected].
