Year 2005 is likely to witness a phase of consolidation in the cement industry. There are several small players in the country, both profitable and ailing, that could be on the acquisition radar. Analysts opine that the potential acquirers could be either the Indian cement giants or foreign companies. An official with a cement major from western India said that the consolidation process will begin in 2005 and will continue thereafter. "If the small players are offered good value by the acquirers, consolidation is bound to happen. At present a price of $100 per tonne is being looked at by some domestic and foreign potential buyers," he added. Cement major, Gujarat Ambuja Cements (GACL), director, AL Kapur, declined any possibility of his company acquiring a particular small player operating in Gujarat. At the same time, he added: "We will continue to wait and watch.
If an opportunity comes, which is worthwhile, GACL will look at it seriously." He further said that the company will retain its market share. For that it is open to acquiring new plants or increasing its existing capacities. Industry observers also point to some small regional players in southern India, both, good performers as well as ones running into losses, as possible acquisition targets for cement majors. Although consolidation has been happening in the cement industry over the years, experts expect the process to gain momentum in 2005. Cement sector analysts pointed out that over the past 2-3 years, major companies had formed some sort of cartels and increased prices. But smaller players broke the ’discipline’ and the prices tumbled down. With consolidation, the big players will gain a much better control over prices.
The highly positive outlook for the cement sector, expected rise in demand, rising cement prices and the good performance by several smaller players, can all trigger capacity expansion on part of the bigger players, either organic or inorganic. Mr Kapur pointed out: "The efficiency in Indian cement sector has been improving. The same quantity of clinker now gives more quantity of cement, than before. The demand for cement is growing, but there has not been enough greenfield capacity addition, especially in northern India." In such a situation, the big players will grab the capacity available with the small players that have efficient plants. (Original report Financial Express, India)