After Several Years of Dull Growth, The Cement Industry Looks set for a Bull run- Thanks to the Revival in Housing and Infrastructure Projects. Will the Pick- Up Sustain?
The Aditya Birla Group-owned UltraTech Cement, India’s largest cement maker, recently announced the acquisition of Jaiprakash Associates’ (JAL’s) cement plants for `16,189 crore. UltraTech increased its earlier offer price by `289 crore, fearing rival offers from companies
such as Sajjan Jindal’s JSW Cement and private equity player KKR. Though the acquisition price is still 5-10 per cent less than the cost of building the 21.2 million tonnes (MT) capacity that UltraTech will get, the revision in the offer price and the number of suitors show that India Inc. is back to betting on a sector that was among the worst hit by the slowdown in the economy after 2011/12 that hit infrastructure building and home construction alike.
Kumar Mangalam Birla, Chairman of the Aditya Birla Group, says economic revival will trigger a rise in demand for cement in the country. “India is moving to a higher growth trajectory and to that extent the cement sector is poised for pick-up in growth – around 7 per cent this financial year,” he said in the 2015/16 annual report of UltraTech. The deal with JAL will take UltraTech’s capacity to 91.1 MT, far ahead of its closest rival, Holcim, which has 60 MT capacity.
After years of low demand, the cement industry is seeing green shoots of revival, thanks to the frantic pace at which the Central government is putting money in infrastructure to kick-start economic growth. This is reflected in the merger & acquisition, or M&A, action we have been seeing over the past several quarters in which big players, some of them global giants, are buying Indian companies.
BYE BYE PRODUCTION BLUES?
The industry is looking up a bit after reporting its slowest production growth in the decade in 2013/14
This story is from the July 31, 2016 edition of Business Today.
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This story is from the July 31, 2016 edition of Business Today.
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