BackThe mega Indian cement sale
With three major cement companies reportedly planning to exit the business, the dynamics of the sector would undergo a major revamp
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Mumbai: Consolidation in the cement industry is nothing new. But the extent of consolidation that could happen now is noteworthy.
Consider this: If you had the money and bought the cement capacity up for sale right now, you could become the country’s second largest cement producer in one shot.
Three cement companies- Lafarge SA, Reliance Cements and Jaiprakash Associates Ltd, are looking to exit their cement business in India if news reports are to be believed. While Reliance Cements has confirmed their plans to exit, Lafarge and Jaiprakash Associates have not.
But if true, the total capacity on sale from just these three is more than 35 million tonnes or close to 9% of the total cement manufacturing capacity in India. This does not include some of the smaller regional cement firms, particularly in the South, which have also been keen to exit at the right price.
To put the quantum of capacity on sale in perspective, the country’s largest cement manufacturer Ultratech Cement Ltd has about 16% of the total market share at present. Holcim controlled ACC Ltd is the second largest cement producer at a stand alone level with a capacity of more than 31 million tonnes.
So who could come in and take advantage of this opportunity? Will it large firms like Ultratech Cement Ltd and JSW Cement Ltd or could someone like a Birla Corp Ltd or a Dalmia Bharat Cement Ltd use this time to catch up with the big boys?
Ultratech Cement has both the promoter backing and the financial strength to pull-off one or more of these buy-outs. However, the company may face anti-trust issues in some regions where they already have a stronghold. The company is too large to become larger.
Even if Ultratech doesn’t buy the assets on sale, it still stands to gain from these deals. A full exit of Lafarge’s India assets, will reduce LafargeHolcim’s combined India capacity to below 60 million tonnes and also lower its threat to Ultratech’s market leader position. Ultratech Cement’s India capacity stands at 64.7 million tonnes and would rise further with its own expansions and its proposed deal to buy out Jaypee’s Madhya Pradesh assets.
JSW Cement Ltd, backed by Sajjan Jindal, could also use this as a perfect opportunity to expand rapidly. These acquisitions, however, will not fit the company’s strategy so far which has involved meeting some of its limestone requirements through slag, a co-product of its steel making business. Besides, JSW Group also faces headwinds in its steel business due to the commodity price crash and has already spent more than $1 billion to buy Jaypee Group’s hydro power assets.
Dalmia Cement Bharat and Birla Corp are among the other potential buyers but may not have the balance sheet strength to support large buyouts.
Birla Corp has already agreed to buy Lafarge’s 5.15 million tonnes cement capacity in East India, although the deal is yet to close.
Dalmia Bharat Cement, in which private equity firm KKR has a minority holding, is another possible contender.
There could be others in the fray. Among them are private equity firms which have been active participants in both the Lafarge and Reliance Cement bidding process. Global cement manufacturers like China Resources Cement, HeidelbergCement and CRH Plc have also shown interest in at least one of the many cement assets that are on sale.
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