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Big, small companies fight it out for dominance in cement

With Harsh Lodha-led Birla Corp bagging the 5-MTPA capacity Reliance Cement, the consolidation in cementindustry has just gained momentum. And with an additional 42 million tonnes per annum (MTPA) capacity on the block, big and small players are in the fray to increase their dominance in the sector. Private equity (PE) players, too, are not far behind to tap opportunities for buy-outs or tie-ups with strategic buyers.

India’s 375-MTPA cement industry is dominated by top two players — Lafarge-Holcim and UltraTech. Both companies dominate with 36% of industry with respective capacities of 70-MT and 65-MT, respectively.

Debt-laden Jaypee Group, the third-largest player with 31 MT capacity, now needs to sell off under lenders’ pressure after the Group defaulted on repayment of a non-convertible bonds last year. 

Besides, Lafarge-Holcim, the new entity created after the global merger of French and Swiss giants, needs to sell of 11 MT capacity of erstwhile Lafarge India to overcome local antitrust laws.

“This is a unique situation. I do not imagine such a large capacity coming on the block again in the foreseeable future. So it does make a difference as the buyer would eventually become quite a dominant force,” says Nitin Gupta, Partner, Transaction Advisory Services at EY.

Anti-trust regulator, Competition Commission of India (CCI), looks at the cement market on regional basis as transportation is critical part of pricing. This has given opportunity to Kumar Mangalam Birla-promoted UltraTechto remain in the fray and become a more forceful player in the market. 

The company has bid for 20 MT capacity of Jaiprakash Associates, whose assets are complementary to UltraTech’s assets on regional distribution basis.

UltraTech also bagged JP Associates’ 5-MT capacity in Madhya Pradesh in December 2014, which got stuck in regulatory hurdles, after the government changed regulations that prohibit transfer of mining rights in case of an asset sale. On the request of lenders, the government has again proposed to amend it in the forthcoming Parliament session to facilitate such deals.

Once these two deals are completed, it will bring Kumar Mangalam Birla very close to his stated goal of having 100-MT cement capacity for UltraTech.

While the big boy UltraTech is trying to be even bigger, other smaller ones are also jumping on this opportunity. 

Dalmia Bharat, the fourth-largest player in the market with 24 MT capacity has also bid for JP Assoicates’ 20-MT capacity.

“For a new player to come and acquire 20-MT kind of capacity is not likely to occur. Barring the sellers, the top five players would be open to evaluating this opportunity. Given the size of the deals, we expect the PEs to tag along with strategic buyers," says Nitin Gupta from EY.

Source: Business Standard