Why Adani, Birla and others are chugging it out in India's cement sector

India is the second-largest producer of cement in the world. In 2022, the sector has witnessed big investments from corporates including the Adani Group and Azim Premji’s investment firm Premji Invest.

In the financial year 2021, domestic cement production stood at 294.40 million tonnes, declining by 12% year-on-year on account of the economic slowdown. Cement consumption in India is projected to reach about 419.92 million tonnes in the financial year 2027. The spurt in demand from sectors such as housing, commercial construction, and industrial construction will lead to an increase in consumption, according to the ‘Cement Industry in India 2021’ report by Research and Markets which provides market and research data.

Also read: Adani buys Holcim’s stake in Ambuja Cements, ACC for $10.5 billion

The report stated that in the wake of the COVID-19 pandemic, cement production was affected due to intermittent lockdowns and restrictions on mobility. Construction activities were interrupted in Q4 FY 2021 and Q1 FY 2022 because of the second wave and this resulted in a decline of consumption.

However, because orders were put on hold, consumption volumes increased in the second quarter of FY 2022. Significant market growth is expected over the forecast period because of higher infrastructure and developmental activities, it added.

With the increase in the growth of infrastructure, the cement production in India is expected to be 800 million tonnes by 2030, according to the Ministry of Power’s Bureau of Energy Efficiency (BEE).

The Indian government’s infrastructure push, rise in affordable housing, and post-pandemic pent-up demand have all now resulted in the cement sector attracting major investments.

Cement production increases

The Ministry of Commerce and Industry, while releasing the combined index of eight core industries for April, said that cement production (weight: 5.37%) increased by 8% in April 2022 over April 2021. Its cumulative index increased by 20.8% from April to March 2021-22 over the corresponding period of the previous year.

Last month, the Adani Group, through an offshore special purpose vehicle, announced that it had entered into definitive agreements for the acquisition of Switzerland-based Holcim Ltd’s entire stake in two of India’s leading cement companies – Ambuja Cements Ltd and ACC Ltd.

Holcim, through its subsidiaries, holds 63.19% in Ambuja Cements and 54.53% in ACC (of which 50.05% is held through Ambuja Cements). The value for the Holcim stake and open offer consideration for Ambuja Cements and ACC was $10.5 billion (₹81,000 crore-plus). It was the largest-ever acquisition by Adani and India’s largest-ever mergers and acquisitions (M&A) transaction in the infrastructure and materials space.

Ambuja Cements and ACC currently have a combined installed production capacity of 70 MTPA (million tonnes per annum). The two companies are among the top brands in India with their 23 cement plants, 14 grinding stations, 80 ready-mix concrete plants and over 50,000 channel partners across India.

Also read: After cement, Adani to foray into healthcare

“With India’s cement consumption at just 242 kg per capita, as compared to the global average of 525 kg per capita, there is significant potential for the growth of the cement sector in India. The tailwinds of rapid urbanisation, the growing middle class and affordable housing together with the post-pandemic recovery in construction and other infrastructure sectors are expected to continue driving the growth of the cement sector over the next several decades,” the Adani Group said.

Gautam Adani, Chairman of the Adani Group, said, “Not only is India expected to remain one of the world’s largest demand-driven economies for several decades, India also continues to be the world’s second-largest cement market and yet has less than half of the global average per capita cement consumption. In statistical comparison, China’s cement consumption is over 7x that of India’s.”

Adani vs Birla

After Adani’s foray into the sector, a cement battle has started.

On June 2, Aditya Birla Group’s UltraTech Cement announced ₹12,886 crore investment towards 22.6 MTPA capacity expansion at $76 per tonne of cement. This will be done with a mix of brown field and green field expansion.

“Commercial production from these new capacities is expected to go on stream in a phased manner, by FY25. UltraTech’s current expansion program is on track and estimated to be completed by the end of FY23. Upon completion of the latest round of expansion, the Company’s capacity will grow to 159.25 MTPA, reinforcing its position as the third largest cement company in the world, outside of China,” the company said.

Kumar Mangalam Birla, Chairman, Aditya Birla Group, said, “This investment is backed by a strong conviction on India’s growth potential as well as a deep and nuanced understanding of the market dynamics of the cement industry. Given the size of the investment outlay, I am confident that this new capacity creation will have a multiplier effect leading to jobs and growth across multiple regions in India.”

DMart promoter to invest in Ambuja Cements

According to a Business Standard report quoting banking sources, billionaire investor and promoter of DMart chain of retail stores, Radhakishan Damani is planning to collaborate with other potential bidders to invest up to ₹10,000 crore in Ambuja Cements as a financial partner.

The Hyderabad-based Sagar Cements Limited, last month, announced that it allotted 1.32 crore-plus equity shares of face value of ₹2 each at an issue price of ₹265 per share, to PI Opportunities Fund – I Scheme II (PIOF), an affiliate of Premji Invest, a leading Private Equity fund in India on a preferential basis in accordance with the approval accorded by the shareholders at their Extra-Ordinary General Meeting held on April 23, 2022.

Pursuant to the above allotment, the paid-up equity share capital of the Company stands increased from ₹23.50 crore to ₹26.14 crore.

“The investment proceeds will be largely utilised towards meeting the organic and inorganic expansion plans of the Company along with funding its general corporate expenses,” the company said.

What analysts said

According to a Financial Express report, analysts believe with Adani’s entry, the cement industry may see the next wave of consolidation. “While there is over 25 MTPA of stressed assets in the domestic cement industry, we are likely to witness capacity acquisition beyond the same as well. Cement players have already announced capacity expansions of 150-160 MTPA over the next five years,” Hetal Gandhi, director, Crisil Research, told the newspaper.

The stressed assets in the sector include Jaypee Group (11.45 MTPA), Andhra Cement (2.6 MTPA), Cement Corporation of India (8.5 MTPA), Vadraj Cement (6 MTPA) and Bheema Cement (1.4 MTPA). This wave of consolidation is expected to be started by Adani, who’s likely to merge Ambuja Cements and ACC into a single entity, analysts said, the report added.

Anupama Reddy, assistant vice-president and sector head (corporate ratings), Icra, told the publication, “With strong demand prospects supported by the healthy demand from the housing segment and the pick-up in infra activities, the cement industry is likely to add 55-60 million MT capacity during FY23-FY24, of which around 28-29 million MT is likely to get added in FY23 and around 28-31 million MT in FY24. Eastern India is expected to lead the expansion and may add around 23-25 MTPA, followed by the central and north region at around 10-11 MTPA during FY23-FY24.”