India: small producers feel pressure

India: small producers feel pressure
26 August 2010

Amid continuous consolidation in the domestic cement sector, with major companies capturing bigger market shares, smaller ones may find it difficult to expand their limited area of operation, according to a report in the Business Standard.

In the current oversupply situation, industry experts say small cement makers are impacted more than the bigger producers. And, the regional nature of the business is likely to make the prospects of small companies bleak if expansion doesn’t happen. The regional variation in demand and supply help pan-India players to some extent, while regional players get hit on profitability.

Andhra Cements, Saurashtra Cement, Gujarat Sidhee, Rain Commodities, Penna Cement, Sanghi Industries, Panyam Cements, Prism Cement, Barak Valley, Sagar Cements, Burnpur Cement and Shiva Cement are among the smaller cement companies. Of the 50-plus companies in the industry, the top five control more than half the market share. Holcim, through its Indian subsidiaries, ACC and Ambuja Cements, and the Aditya Birla Group alone control close to 40 per cent of the market share in the country. The two groups have reasonable presence in almost all regions.

Kamakhya Chamaria, managing director of northeast-based Barak Valley Cement, says: “In coming years, it will be difficult to operate in the market, as bigger players are fast consolidating. As a result of this, pricing power will go out of the regional players’ hands.”

The negativity associated with regionality in the business forced mid-sized companies such as India Cements, Shree Cement, Jaiprakash Associates, JK Lakshmi Cement, JK Cement and Lafarge to expand outside their home markets.

Rupesh Sankhe, analyst at Angel Broking, says, “Many of these smaller players have old plants which are less efficient than the modern bigger units. With high operating costs, their margins are under pressure and they cannot go away from their local market.”
Published under Cement News