Consolidation in the Indian Cement Industry
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Case Details:
Case Code : BSTR162
Case Length : 27 Pages
Themes: Acquisition strategy | Consolidation
Period : 1997 - 2005
Organization : -
Pub Date : 2005
Teaching Note :Not Available
Countries : India
Industry : Engineering,
Construction, and
Real Estate
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"No significant expansion is expected to take place in the
next couple of years (starting 2005) even as demand is catching up because the
industry has learnt hard lessons after its over enthusiastic expansion drive
between 1995 and 1997 when a whopping 40 million tonnes capacity was added then
as compared to the overall production of over 140 million tonnes now".1
- S R B Ramesh Chandra, President, All India Mini Cement
Manufacturers Association and MD, Coromandel Cements Ltd. in 2004.
"India is not the most difficult country to work given our
experience in some other markets. But if we look at the cost structure,
electricity is an issue and our Indian operation has the highest electricity
cost within the group. Globally cement prices are doing well in all markets
where we are present but in India, unfortunately, it is too low. This is because
of competition and oversupply and even though demand is growing pricing
opportunity is a bit low here."2
- Carlo Pesenti, CEO, Italcementi SpA in 2005.
Introduction
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With an installed capacity of approximately 150 million tonnes in 2005, India is
the second largest producer of cement in the world accounting for approximately
6% of the global production (Refer Exhibit I for cement production in India and
other countries in 2003). In 2004, the Rs 300 billion cement industry in India
operated at 80% of capacity. The industry has also shown perceptible
improvements in 2004 as compared to 2003 (Refer Exhibit II for the financial
highlights of cement industry in 2003 and 2004). In 2003-04, compared to the
world average consumption of approximately 270 kg per capita, cement consumption
per capita in India was only about 100 kg.
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This compares with per capita consumption of 450, 447 and 631 kg in China,
France and Japan, respectively. The potential for growth makes the cement
industry in India attractive.
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But as it
takes considerable investment to build a greenfield capacity, and there
is gestation period of 3-4 years before a company breaks even,
acquisition of smaller players in a fragmented industry3
is considered a viable option by industry majors. In India, the cement
industry is cyclical in nature. Cement production normally peaks in the
month of March while it is at its nadir in the month of August and
September. Though the industry has seen consolidation by domestic
players starting in the mid-1990s, it was only in the late 1990s that
foreign players entered the market. By 2005, leading global players who
had entered India included Holcim Group (Holcim)4,
Lafarge, Italcementi SpA, among others. |
Consolidation in the Indian Cement Industry
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