Adani’s entry into cement industry has brought in a spell of uncertainty into the industry as the incumbent players are still in guess mode about the possible strategy of the Group which has been on an acquisition spree in recent years.
One of the doubts hovering around is whether the new entrant will go for market share expansion through aggressive pricing? If it does so there will be no choice for others but to follow the same strategy that too when costs are rising. However, analysts point out that Adani would be depending on substantial borrowings, to the tune of $7 billion, to fund the acquisition cost of $10 billion and to service such huge debt the company may have to maintain EBIDTA margin of Rs 800-1,000/ton. In other words, Adani may not have much room to play with the cement prices at least in the near term. Also, an aggressive pricing may dilute the premium positioning of the brand in the market.
Also, the group has announced its plans to increase capacity from the current 70m MT to 130m MT in 6 years which is not an impossible task. This may force others also to go for capacity expansion to maintain their market share. In that scenario, one may expect a situation of excess capacity in the industry in the medium term. However, if the capacity addition is via acquisitions, then net additions for the industry are likely to be lower, say the analysts.