The Ultratech and Ambuja acquisitions are just the latest in a larger consolidation of the cement industry.

Kumar Mangalam Birla-promoted UltraTech Cement on Thursday announced that it has bought a 23 per cent minority stake in Chennai-based India Cements for Rs 1,889 crore.

Two weeks ago, Adani Group’s Ambuja Cements had announced that it had signed a binding agreement to acquire 100 per cent stake in Hyderabad-based Penna Cement Industries for Rs 10,422 crore.

The two acquisitions are the latest in a string of other such moves where India’s largest cement companies are making strategic purchases to not only expand their production capacity but also expand their geographical reach.

An analysis of recent mergers and acquisitions in the cement sector showed that before the UltraTech Cement-India Cements deal, there have been 21 other transactions in the cement sector since the beginning of 2016 with a total value of at least Rs 1.59 lakh crore. Some transactions involved the exchange of shares and therefore their cash value is not readily available.

Moreover, the data shows that most transactions (worth Rs 1.12 trillion), at least in monetary terms, took place after the pandemic.

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Ultratech movement in response to Adani

“We see this move as a sign of the final consolidation in the industry and expect the two leaders, Ultratech and Adani, to look for further inorganic growth opportunities,” brokerage firm Centrum Broking, which offers sector research and analysis services, said in a note after Ultratech’s announcement on Thursday.

The Center further noted that since its entry into the cement industry with the acquisition of ACC and Ambuja Cements in 2022, the Adani Group has now acquired nearly 24 million metric tonnes (MMT) of production capacity and is on track to achieve 140 MMT of production capacity by FY28.

“Given Adani’s aggressive growth trajectory, we believe Ultratech may have been prompted to make this move,” the Centre said.

Ambuja’s acquisition of Penny was seen as a strategic move by the Adani Group to increase its presence in south India, especially Andhra Pradesh and Telangana, where Penny’s assets are concentrated.

“In the case of Ultratech, the acquisition of a non-controlling stake in India Cements has prevented the competitor from further deepening its presence in the southern region,” he added. “This acquisition will also bring much-needed consolidation in the southern region, which has been grappling with oversupply and underutilisation for some time now.”

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Ongoing consolidation in the cement industry

An analysis of the cement sector shows that the top five players in the sector — Ultratech Cements, ACC, Ambuja Cements, Shree Cement and Dalmia Bharat — have strengthened their positions and increased their combined market share over the last six years.

“Since FY18, larger players have been consolidating their market shares, with the market share of the top five players increasing from 67% in FY18 to 72% in FY24,” Equirus Securities said in a research report. The market share is set to increase with the recent acquisitions in FY25.

A notable additional effect of this consolidation is that fewer firms are likely to benefit from ongoing central government capital expenditure and infrastructure development efforts.

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Larger players capture revenues and profits

ThePrint’s analysis shows that the consolidation of the cement industry, with a few players taking over a significant share of the market, has resulted in these companies enjoying solid growth in revenues and profits.

The top five players in the cement industry have seen continuous revenue growth over the last five years, from Rs 88,227 crore in 2019-20 to Rs 1.39 lakh crore in 2023-24. Similarly, the combined profits of these five companies rose to Rs 14,714 crore in 2023-24 from Rs 10,010 crore five years ago.

“With aggressive strategies to retain/gain market share by expanding production capacity and expanding distribution reach, we believe the top five players should continue to outperform the industry, with strong government-led institutional demand and overall industry demand also growing,” Equirus Securities noted.

(Edited by Madhurita Goswami)

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