Adani, Aditya Birla locked in a race for cement business expansion

Competition is intensifying in India's cement industry, with the Adani Group's cement venture dialling up its capacity expansion target by just above 10%, a fortnight after larger rival UltraTech Cement Ltd raised its own target by a similar quantum.

Billionaire Gautam Adani, who entered the cement industry three years ago with the acquisition of Holcim AG's India business and became India's second-largest cement maker overnight, has further gone on to buy smaller cement makers such as Sanghi Industries, Penna Cement and Orient Cement.

The group, which can produce 107 million tonnes per annum (mtpa), on Monday said it will add another 15 mtpa by FY28 to reach 155 mtpa, doubling the business size since acquiring Ambuja Cement and ACC Ltd from Holcim in 2022. To be sure, this additional capacity will come from so-called debottlenecking, or optimizing existing operations to raise production, without major new construction and at a lower cost.

On 18 October, India's largest cement maker with a capacity of 167 mtpa, had raised its own capacity expansion target to 240 mtpa over the same period, by adding 22.8 mtpa. Additionally, it aims to reach 200 mtpa by the end of FY26, a year ahead of schedule. Ever since Adani entered the cement business, UltraTech has expanded capacity by 51 mtpa, by acquiring India Cements Ltd and Kesoram Industries Ltd, as well as its own internal expansion.

Together, the two rivals have added 90 mtpa of cement manufacturing capacity over the past three years, through the acquisition of smaller companies and the construction of new manufacturing plants. This exceeds the manufacturing capacity of Shree Cement, India's third-largest cement maker with a capacity of 56 mtpa. At the current pace, the two cement manufacturers are poised to consolidate over half of India's total cement manufacturing capacity of 688 mtpa.

The latest expansion plans just when the market was seeing some signs of mellowing competitive intensity, with a focus on increasing profitability.

“The (Adani) announcement can be seen as a strategic move to close the competitive gap, signalling the company’s intent to match its rival’s expansion plans,” said Satyadeep Jain, lead analyst for cement, metals, mining & utilities at Ambit Capital.

On Monday, Ambuja Cements chief executive officer (CEO) Vinod Bahety said in a statement that the expansion plan will not involve significant capital expenditure, since it will be a debottlenecking exercise.

Adani's cement business, which is housed under Ambuja Cements, posted a sharp rise in net profit, largely due to the company reversing provisions made earlier, following favourable court rulings and tax assessments. Standalone profit after tax more than doubled to ₹1,387.55 crore in the September quarter from ₹500.66 crore a year earlier.

Provisions totalling ₹1,179.71 crore were reversed after favourable high court decisions, the company said. The tax refund benefit was partially offset by a one-time hit for government incentives that were withdrawn in West Bengal.

The company reported standalone revenue from operations of ₹5,139.48 crore, rising 26.2% year-on-year. In the same quarter last year, the company's revenue was ₹4,073.17 crore. However, on a sequential basis the company’s revenue came down almost 7% as the second quarter is a seasonally weak quarter.

The sequential revenue decline can be attributed to a pricing decline of around 1%, Jain of Ambit Capital said. "Since it's a seasonally the weakest quarter, Q1 to Q2 volume also typically declines, he said.

"The group is aggressive in its market share target - 22% by FY28 vs current 16.6%. That’s a risk for the industry as such aggressive market share gain may come at the cost of pricing," he said.

"The management has guided for cost-saving of about Rs.400 per tonne by the end of this year, and then another Rs.200 saving next year, and another Rs.150–200 a year after that. Their plans look ambitious; overall, the Street will watch the execution," Jain said.

“This quarter has been noteworthy for the cement industry. Despite the headwinds from prolonged monsoons, the sector will benefit from the tailwinds of several favourable developments including GST 2.0 reforms, the Carbon Credit Trading Scheme (CCTS), and the withdrawal of coal cess,” CEO Bahety said in the statement.

“With some of these plants which have these ball mills, for example, you actually put up a roller press also, which will complement these ball mills and that actually helps you to have a higher grinding capacity,” Bahety said at a post-earnings interaction with analysts.

A ball mill crushes cement materials into fine powder, and a roller press helps by squeezing the material first, so the mill can work faster and more efficiently. The company has identified 13 locations for this project.

This will be the first phase of debottlenecking, Bahety said, adding he thinks there will be more such projects down the line. "But right now, these are like low-hanging fruit for us to immediately move on that,” said Bahety, adding that there is also scope for debottlenecking of clinker capacity for which studies are ongoing.

The Ambuja Cement CEO noted there was an improved economic sentiment and higher investment in both public and private sectors, which "augurs very well for the industry."

The company is also installing 13 blenders at its plants over a period of 12 months, which will optimize mix and increase share of premium cement, Ambuja Cements said.

The company said that demand in Q2FY26 was moderate, growing 4% year-on-year. With GST reduction from 28% to 18%, improved economic sentiments, increased investments both from public and private sectors, demand is expected to see uptick, it said, reaffirming its annual growth estimate of 7-8%.

Ambuja Cements shares rose 2.36% on the NSE on Monday at ₹578.75, while the benchmark Nifty index rose 0.16%. The company announced the results during market hours.