Indian Cement Industry Faces Intense Competition Amidst Major Consolidation
Most cement companies have announced ambitious expansion plans for the medium to long term.
The Indian cement industry has witnessed major consolidation over the last decade, with the Adani Group and UltraTech Cement Ltd. acquiring major assets, raising the competition for market share. Despite sufficient existing capacity for growth, most companies in the sector are expanding, leaving smaller players to compete fiercely for a limited share of India's overall market capacity.
Market Share
The capacity of India's listed cement companies is 522.8 million tonnes per annum, with the top five players holding a 62.2% market share. On a regional basis, three players typically contribute around half of the total capacity.
The top 10 players hold an 85.27% market share, leaving 14.73% for 25 other cement companies, according to the calculations made by NDTV Profit from the data of Prabhudas Lilladher Pvt.
Capacity Additions
Most cement companies have announced ambitious expansion plans for the medium to long term. Prabhudas Lilladher expects a total capacity increase of 130 MT over the next three years. To meet these targets while maintaining profitability and financial health, companies must choose from organic or inorganic expansion strategies.
The brokerage anticipates leading cement players, such as UltraTech Cement, Ambuja Cements Ltd., Shree Cement Ltd. and Dalmia Bharat Ltd., to pursue both organic and inorganic growth. Companies like UltraTech, Dalmia Bharat and Nuvoco Vistas Corp. have historically utilised the inorganic route for capacity expansion.
Consolidation Phase Likely To Continue
Prabhudas Lilladher expects the consolidation phase to continue. It highlighted how global and domestic consolidation has changed the industry.
Mergers of Lafarge and Holcim into LafargeHolcim, and HeidelbergCement fully acquiring Italcementi, impacted Indian subsidiaries as well. The Adani Group's acquisition of Holcim's entire stake in Ambuja Cements and ACC Ltd. made it the second largest cement producer in India, changing the domestic cement industry's dynamics.
Benefits of Consolidation
The pace of consolidation will shape pricing trends in the sector, with the expected commencement of additional capacities. Heightened consolidation can enhance profitability by fostering improved pricing discipline among cement manufacturers.
However, assessing the pricing outlook becomes challenging due to evolving competitive landscapes and the emergence of new market participants. The primary competition might arise among the larger cement companies, potentially resulting in prolonged periods of pricing pressures.
Players With Smaller Capacities
The brokerage pointed out that smaller players with a capacity of 3–10 MTPA could cash out in this decade of strong growth and the right valuation would be key for the large players.
Eight cement players fit this profile, with the aggregate capacity of these players at 41.2 MT. Among them, Orient Cement Ltd. has the highest capacity of 8.5 MTPA and NCL Industries Ltd. has a capacity of 3 MTPA.
The aggregate market share held by the companies is at 8.05% of the total installed capacity, with a market share of individual companies ranging between 0.57% and 1.63%.
Potential Types of Capacity Additions
The sector has witnessed consolidation with large cement makers taking over regional heavyweights as well as struggling companies, according to SBI Securities.
Discussing the potential type of capacity additions region-wise, the brokerage views:
East and Central: The regions have seen even growth of demand and supply as many large players are present. There can be inorganic growth due to the strong demand drivers.
North: Lack of capacity additions may trigger organic capex being deployed.
South: While operating ratios have improved, the region is still plagued by overcapacity.
West: Region has observed a controlled capacity addition trend in order to solve supply shortage.
Financial Performance
Except for HeidelbergCement India Ltd., the three-year compounded annual growth rate in revenue of the smaller capacity players have been positive in the range of 8% to 25%, but the net-profit CAGR has been negative.
Mangalam Cement Ltd. has had the highest three-year net-profit CAGR at 66%, while Orient Cement has had the lowest at 24%. Companies like Prism Johnson Ltd. and Rain Industries Ltd. even reported a net loss in financial year 2023.
