Billionaire battle heats up as Adani challenges Birla on cement – BNN Bloomberg

(Bloomberg) — Battle lines are drawing in India’s cement market, with Gautam Adani’s expansion setting off a race with fellow billionaire Kumar Mangalam Birla’s UltraTech Cement Ltd. to expand capacity and acquire assets.

The clash of giants is likely to intensify as well-funded tycoons seek to dominate the supply of construction materials, which play a key role in sustaining India’s infrastructure boom.

Ambitious newcomer Adani and sector leader UltraTech have already clinched six deals in less than two years, and cement maker Birla announced a seventh on Sunday to control a coveted regional player. At least half a dozen smaller rivals are still up for grabs.

“Adani’s philosophy, whenever they enter a sector, is to dominate and take on the competition on a war footing,” says Aditya Kondawar, Pune-based partner at wealth management firm Complete Circle Capital Pvt. “When Adani entered, there was a fresh aggression in the sector, which motivated UltraTech to expand as well. When the competition is at the door, you either go in or out.”

Adani Group’s entry into the market in 2022 upended the local hierarchy — it became the second-largest cement maker overnight after acquiring Ambuja Cements Ltd. and ACC Ltd. — but the company spent much of 2023 putting out fires after a damning report from Hindenburg Research.

The power and ports conglomerate resumed its expansion only this year, fuelling a turf war in the cement sector as Birla’s staunch owner stands his ground.

Cash for mergers and acquisitions

Adani, which has acquired four companies in the sector since entering the market, aims to double its annual production capacity to 140 million tonnes by 2028.

The group is looking for new cement assets to expand its reach, acquire a key raw material — limestone reserves — and has a budget of about $4.5 billion for acquisitions over the next two years, according to people familiar with the discussions who spoke on condition of anonymity.

The Adani Group, which controls India’s largest private port operator, is aiming to cut costs significantly even if it fails to match the cost-efficiency of Chinese cement makers, one of the people said.

Shipping by sea or inland waterways costs a fraction of trucking, and Adani Ports & Special Economic Zone Ltd.’s network will help there, the person added. Adani Ports is already planning a $2 million cement-grinding unit at its transshipment terminal in Kerala. Green energy from group companies could help reduce fuel costs, the person said.

Leadership moat

To strengthen the moat around its leadership, UltraTech acquired a smaller rival last year. In June, it bought a minority stake in the Chennai-based cement maker, then increased control to a majority this week — a move seen as marking its territory to fend off Adani. It is also circling another target.

The cement giant intends to continue expanding its business and acquiring assets to reach an annual production capacity of 200 million tonnes by 2027, according to people familiar with Birla’s strategy.

Adani Group representatives declined to comment, while UltraTech representatives did not respond to an emailed request for comment.

Construction Mission

Prime Minister Narendra Modi’s mission to build everything from airports and power plants to roads, bridges and tunnels will boost India’s infrastructure investment to 15 trillion rupees ($179.2 billion) by March 2026, according to Crisil Ratings.

This will create huge demand for cement that will outstrip supply in the coming years and create expansion opportunities that neither Adani, Asia’s second-richest man, nor Birla will be able to resist.

Adani, which acquired Penna Cement Industries Ltd. last month, had been eyeing Jaypee Group as well as Orient Cement Ltd. in the recent past, according to local media reports. Orient Cement has now also attracted interest in UltraTech.

People familiar with the matter said other companies such as Saurashtra Cement Ltd., Mangalam Cement Ltd., Vadraj Cement Ltd. and Bagalkot Cement Industries Ltd. could also be targeted.

South India is the most fragmented cement market in the country, with the largest installed capacity and a large number of companies that have failed to expand their capacity over the years, Sanjeev Kumar Singh and Mudit Agarwal, analysts at Motilal Oswal Financial Services Ltd., wrote in a July report.

“It is possible that some of these players will consider exiting the industry if offered favorable valuations,” Singh and Agarwal wrote.

Hunting area

This makes the geographic area an ideal hunting ground for billionaires, who have already started striking deals.

Adani’s purchase of Penna Cement in June was meant to boost its presence in southern India. Days later, UltraTech bought a 23% stake in India Cements Ltd., a Chennai-based company with a production capacity of nearly 14.5 million tonnes, to block any potential bid by Adani. On Sunday, Birla’s company bought almost a third of India Cements for $472 million, taking its total stake to more than 55%.

“This enables UltraTech to serve southern markets more effectively” and accelerates the achievement of the 200 million tonne target, Birla said in a statement on Sunday.

“The pace of acquisitions in the cement industry was inevitable given the government’s spending on infrastructure and housing,” said Aveek Mitra, founder of New Delhi-based Aveksat Investment Advisory.

According to Mitra, there are about 100 listed and closely held cement producers in India, with most of them having a small market share.

“A block of assets worth 28 million tonnes is in the pipeline” and M&A deals are expected to continue as large incumbent players look to retain their market share, Anupama Reddy, joint head of corporate ratings at ICRA Ltd., wrote in a June 13 note.

Of course, even with all its aggressive expansion, Adani will still find it hard to topple UltraTech. The gap between the two rivals is significant and will remain so, given the announced capacity additions.

Antitrust control

Adani and UltraTech will also have to watch out for scrutiny from India’s antitrust regulator and avoid acquisitions in regions where they have a high concentration of market share.

While demand for cement is strong now, it could taper off in four or five years, according to Jyoti Gupta, research analyst at Nirmal Bang Institutional Equities. Smaller companies such as Dalmia Bharat Ltd., Shree Cement Ltd. and JSW Cement Ltd. are also scaling up.

“When infrastructure spending comes down and there is enough supply of residential real estate, will there be enough demand to use all that extra capacity?” Gupta said.