Cement battle to intensify as Adani, Birla plan capacity expansion

The Adani Group, which became the second-largest cement maker in India by acquiring Switzerland-based Holcim AG's India cement business for $10.5 billion a few weeks ago, is planning aggressive capacity addition to challenge market leader Aditya Birla Group's Ultratech.

From the current 70 million tonnes per annum (MTPA) capacity acquired through Holcim, the Adani Group is planning to expand to 100 MTPA capacity in the next 3-4 years and thereafter 130 MTPA in the next 5-6 years, Adani group chairman Gautam Adani told Fortune India in a recent exclusive interaction.

Soon after Adani acquired ACC and Ambuja Cement from Holcim, Ultratech announced further capacity addition to reach 159.25 MTPA by FY25 from the current 120 MTPA, to retain its position as the third-largest cement company in the world, outside of China. The Kumarmangalam Birla-led Ultratech is planning an investment of ₹12,886 crore for 22.6 MTPA capacity expansion in the coming 2-3 years. "Commercial production from these new capacities is expected to go on stream in a phased manner, by FY25. UltraTech’s current expansion is on track and is estimated to be completed by the end of FY23," says Ultratech.

The Adani Family, through an offshore special purpose vehicle, acquired Holcim's India assets and the transaction is expected to close in the second half of 2022. Adani last year had set up two cement subsidiaries -- Adani Cementation and Adani Cement under Adani Enterprises, with plans of setting up two cement plants.

Gautam Adani acquired 63.19% of Holcim's India assets beating rivals Ultratech and JSW Cement. While the JSW group led by Sajjan Jindal offered a $7 billion bid for Holcim's India assets, Kumarmangalam Birla-led Ultratech felt paying over S$10 billion for ACC and Ambuja would be an overpriced proposition. JSW has a cement capacity of about 14 MTPA and plans are to increase this capacity to 25 MTPA in a year.

Analysts say the Holcim deal is expected to start a fresh wave of consolidation as around 25-30 MTPA of stressed assets are already available from companies like Jaypee, Andhra Cement, and Cement Corporation of India, Bheema Cement, etc. Further, leading cement makers undertaking a cumulative capacity expansion of 150-160 MTPA over the next five years.

India is the second-largest cement producer in the world but accounts for about 7% of the global installed capacity. India’s overall cement production capacity was nearly 545 million tonnes (MT) in FY22. Total cement production was about 262 million tonnes (MT) in FY21 (till February 2021).

As per ICRA, in FY22, the cement production in India may increase by 12%, driven by rural housing demand and the government’s strong focus on infrastructure development.

India is also the world's second-largest cement market, though it has less than half of the global average per capita cement consumption at about just 240 kg per capita, as compared to the global average of 525 kg per capita. Against this, China has a per capita cement consumption of over 1,600 kg.

"Our move into the cement business is a validation of our belief in our nation's growth story and our capabilities. The drivers for this decision have been based on two primary factors. The demand-supply gap, and the synergies with our existing businesses," says Adani.

Cement is fundamentally a game of supply chain and energy efficiency, and therefore "our natural adjacencies look highly attractive to us", Adani reasons for this foray into cement.

Growth of the middle class, the government’s focus on infrastructure like 100 smart cities, 200 new airports, housing for all as part of the Pradhan Mantri Awas Yojana, large-scale concrete highways and the ministry's mandate that stipulates a minimum of 25% of concrete volume to be used in national highways, expressways and other centrally-sponsored road projects, etc., is going to drive cement consumption, says Gautam Adani.

He says the group's expertise in related fields and green energy will help reduce the carbon footprint of cement manufacturing. "A core part of the Adani Group’s capability revolves around its expertise in energy management, including heat recovery. Therefore, when combined with the learnings we will get from the sustainability practices that ACC and Ambuja Cement have adopted, I am very confident that we will become the greenest cement company in the world," he says.