7. Competition and Consolidation
- Although the Indian cement industry has some multinational cement giants, like Holcim and Lafarge, which have interests such as ACC and Ambuja Cement, the Indian cement industry is broadly home-grown.
- Ultratech Cement, the country’s largest firm in terms of cement capacity, holds over 18% of the domestic market, with ACC (50%-owned by Holcim) and Ambuja (50%-owned by Holcim) having 10% and 9% shares respectively (as per FY13 capacity numbers). Many of the remaining dozen top players are India Cements, Shree Cements, Ramco Cements, Lafarge, Birla Cement and Binani Cement.
- Between them, the top 6 and top 12 cement firms have around 50% and 70% respectively of the domestic market. Around 100 other smaller companies produce and grind cement on a wide range of scales but are often confined to small areas.
- The industry has seen some consolidation in the past, and the same is going to be the mantra for most large payers in the years to come. With larger capacities, companies enjoy a better cost structure driven by significant vertical integration and location advantage with respect to sourcing of raw materials and market access. Most small companies, because of lack of one or more of these factors, have a weaker competitive position.
- The industry economics and the regulatory actions exhibited by the Competition Commission of India (see here and here) may push marginal players to consolidate. However, not all marginal companies would be attracting acquirers. Companies with either access to resources (raw material and power/fuel) or proximity to relatively underserved markets or both are most likely to be targeted for consolidation.
- A few compelling reasons why Indian and foreign cement majors appear to be gung-ho about acquiring cement capacities in India include a). Excess capacity of the existing players which can be used to fulfil the global demand at lower cost of production; b) Rising cost of greenfield/new projects which also tend to have longer gestation period.