The pace of M&A activity in the Indian cement industry has picked up over the previous year, with the country’s leading cement producers in particular looking to strengthen their positions at the top.

The Aditya Birla Group’s UltraTech Cement is leading the acquisition trail to build a stronger base. The company is currently the single-largest cement producer in India, with a total domestic capacity of 66.6 MT/annum in 2017. One of the newest players in the local cement industry has had its domestic capacity increasing more than 10-fold since FY98 adopting a two-pronged strategy of organic and inorganic growth. Earlier, it was reported that the company is nearing completion of an agreement to acquire the cement division of Jaiprakash Associates for Rs 160 billion, with local sources saying the deal is expected to close in July. This acquisition will increase UltraTech’s capacity by a further 20MT/annum, and the group is currently constructing a 3.5 MT integrated plant in Dhar, in Madhya Pradesh. These additions will take UltraTech’s Indian production base to more than 90 MT/annum by the middle of 2019.

Meanwhile, LafargeHolcim has initiated a process of merging of its Indian operations ACC and Ambuja Cement following months of speculation that a union could be on the cards. With a capacity of 33.41 MT/annum, ACC is the larger of the two, with 17 plants located across the country. Ambuja Cement has a capacity of 29.65 MT/annum, spread across five integrated plants and eight grinding units. A combination of the two groups would give a combined capacity of 63 MT/annum. The move is being considered "with a view to combine the strengths of both businesses so as to benefit all stakeholders," ACC said in a statement.

Analysts believe the merger, if cleared, will lead to rationalisation and savings on many levels including logistics and taxes on interparty transactions, cross-branding and cross-bagging and also sales and marketing. However, industry commentators have noted that the benefits of this will accrue only in the long term.

If the merger happens, it will be the latest in a series of such transactions over the past year from producers further down the ladder. Aside from UltraTech’s pending acquisition of Jaiprakash’s cement assets, in the last year, JSW Cement said it will buy out the entire promoter holding in cement maker Shiva Cement. Nirma acquired Lafarge India, taking the capacity of the former from about 2 MT/annum to 13 MT/annum. In August 2016 Birla Corp completed the acquisition of Reliance Infrastructure’s cement arm. And since the acquisition of Italcementi, HeidelbergCement has strengthened its position in India, and now has four integrated plants and four grinding units in the country, with a combined capacity of 12.7 MT/annum.

Despite these deals, the Indian cement sector remains fragmented with 232 plants and a cement capacity of 413 MT/annum. However, the market is dominated by four major players who collectively hold more than half of the country’s installed capacity. UltraTech and LafargeHolcim together have 35 per cent of capacity, with Dalmia Cement and Shree Cement sharing the remainder. Of the remaining large firms outside the top four are Ramco, India Cement and Chettinad. India’s remaining production capacity is divided between a number of other larger and mid-sized firms and a host of smaller players.

Capacity has grown rapidly, rising from 220 MT/annum in 2009. However, cement volume growth has also been weak in the past 3-4 years, led by a slowdown in housing and commercial building. Going forward, demand is likely to increase given an improved focus on infrastructure, low-cost housing and uptick in rural housing.

In addition, the pace of capacity growth has begun to slacken as utilisation rates have fallen. With past lessons learnt in terms of excessive capacity building, and a slowdown in the rate at which new additions are built, consumption growth is predicted to outpace it, leading to higher utilisation rates and better financial conditions for Indian producers.