Indian cement industry with annual production over 300 mtpa is the second largest in the world, after China. Though there is huge gap between the first and the second largest producers of this dry building material, this gap would narrow down in the coming years as the pace of execution of housing, urbanisation and infrastructure projects picks up in India due to expected rapid economic growth. When the industry is on the verge of seeing exponential growth in the coming years, it is surprising if one of the leading producers of cement decides to call it a day!
Keeping these facts in the background, the recent news reports saying Holcim, the second largest cement producer in the country, is planning to exit Indian cement industry has come as a big surprise. Though, Holcim has not made any formal announcements some potential buyers have already shown their interest in the company and some of them are new to the industry as manufacturers.
Though the cement industry in the past has seen many big takeovers (some of which were hostile in nature) this deal, if and when happens, would surpass all of them. Its sheer size would limit the number of bidders who would be in the fray for the mega acquisitions. Media articles suggest JSW and Adani Group, among others have been engaged in early stage negotiations with Holcim. India’s largest producer of cement, Ultratech Cement too has shown interest in the deal but it may be an uphill and time-consuming task for the company to get CCI approval.
Though for the people in India, Holcim’s reported decision to put on block its cement business, has come as a big surprise, many of the global M&A experts were expecting something like this to happen sooner or later.
Holcim has recently started focusing on green products and in its CY21 annual presentation, it set a target to reduce the share of its revenue from cement sales from 60% in CY20 to 35% by CY25. It recently acquired companies/businesses (in the US and Europe) in a bid to expand the revenue share of S&P (solutions & products) from 8% in CY20 to 30% by CY25. In the past 12 months, it also exited from Brazil, North Ireland, East Africa (Zambia, Malawi) and Indian Ocean regions, selling off its cement assets. Its stated stance towards these sell-offs has been to advance its ‘Strategy 2025 – Accelerating Green Growth’ goal with a focus on consolidating its position in its core markets to become the global leader in innovative and sustainable building solutions. In this context, the expected sell-off of Indian operations should not come as a surprise to us.
The group, that is, ACC and Ambuja, has combined cement capacity of 67.6mtpa. Ambuja has 31.5mtpa capacity while ACC has 36.1mtpa capacity currently. The group has a Pan-India presence and is the 2nd largest cement producer in India.
As far as environment footprint is concerned, both ACC and Ambuja have lower carbon footprint compared to Holcim’s overall performance globally. In CY21, Holcim reported specific CO2 emissions of 553kg vs 529kg by Ambuja (5% lower) and 488kg by ACC (13% lower).
However, proposed sale by Holcim of Indian cement operations, may spell a cloud of uncertainty over several planned projects announced by both ACC and Ambuja. Both ACC and Ambuja have indicated aggressive growth plans for the next 5-10 years. ACC’s capex spend towards its ongoing expansion in the central region is already moving at snail’s pace. ACC has also indicated plans to debottleneck capacities across locations to drive growth. Ambuja has a 9mn MT expansion coming up over the next 3-5 years, mainly in the east region. Any undue delay in completion of the deal, dure it size, regulatory hurdles/approvals, etc., could potentially derail the focus on these expansions. This would be bad for cement user industries as a slower pace of capacity addition may create supply demand imbalance which in turn may affect price of the commodity in that region.