Mumbai, April 6: The merger of the world’s two biggest cement makers has the potential to churn the fortunes of India’s cement industry in a concrete mixer.
Holcim, which now owns ACC and Ambuja Cements, is the country’s second-biggest cement maker with a combined capacity of 45 million tonnes.
Lafarge is a much smaller player in India with a capacity of about 8 million tonnes.
If the two combine their operations, they will be ready to challenge Kumar Mangalam Birla’s UltraTech Cement which has a total capacity of 57 million tonnes.
Holcim, which controls about a fifth of India’s total cement making capacity, acquired a controlling stake in Ambuja Cement in 2005.
Ambuja Cement has plans to create a 4.5 million tonnes per annum plant at Marwar Mundra in Rajasthan for which the environmental clearance has already been obtained and land acquisition has reached the final stages.
On a standalone basis, Ambuja Cement is the third-largest cement maker in India with a total capacity of 27 million tonnes per annum. It focuses on the markets in west and north India and has no plants in the south.
Ambuja Cements has 40 per cent of its cement capacity in the west, 38 per cent in the north and just 16 per cent in the east.
However, UltraTech Cement hasn’t been sitting idle. It has also been looking at acquisitions and recently struck a deal for the Gujarat units of Jaypee Cement, which will add about 4.8 million tonnes to its cement-making capacity.
The Birla cement giant plans to add 3.2 million tonnes of grinding capacity in the eastern region by the second half of 2014-15.
But the bummer in all this is the moribund state of the economy which has badly hurt the fortunes of India’s cement industry.
Tough conditions at home
Ambuja Cements has been facing price pressure. In the fourth quarter of calendar year 2013 (October-December), its topline fell 5.3 per cent year-on-year to Rs 2,191 crore with volumes down 1.9 per cent year-on-year to 5.25 million tonnes. Its realisation per tonne was down 3.5 per cent to Rs 4,174 per tonne in the October-December quarter of 2013 from Rs 4,324 in the year-ago quarter, says a report by Angel Broking.
UltraTech Cement has also found the going tough. In the third quarter of 2013-14 (October-December), it had reported sales of 10.3 million tonnes, just 0.7 per cent higher than the 10.2 million tonnes a year ago. But the price realisations fell 2.1 per cent to Rs 4,661 per tonne from Rs 4,761 a year before.
The big question will be over the regulatory approvals for the Holcim-Lafarge merger in India.
In 2013, Holcim started consolidating its holdings in India under Ambuja Cements. As part of the move, Holcim India transferred 50 per cent of its stake in ACC to Ambuja Cements in exchange for cash and shares. Holcim’s stake in Ambuja consequently rose to around 61.4 per cent from 50 per cent earlier.
If Holcim merges with Lafarge globally, the French cement maker will gain control of both ACC and Ambuja in India.
The deal will also enhance the geographical spread of the merged entity. Lafarge has a strong presence in the east while Holcim has a big presence in the north and the west.