Cement companies rally on Holcim-Lafarge merger

MUMBAI: Shares of Indian cement makers rallied in a lacklustre market on Monday as investors bet the industry would be better placed on pricing after the global merger of the two giants Holcim of Switzerland and France's Lafarge. ACC, owned by Holcim, rose 1.08 per cent to close at Rs 1,375.

Ambuja Cements, another Holcim-controlled cement maker, surged 2.98 per cent to end at Rs 208.75. Ultra-Tech, the main competitor of Holcim in India, surged 3.02 per cent to Rs 2,214 despite speculation the merger may pose a threat to the company’s future earnings.

“The Indian cement industry will now be controlled by six cement majors having 200 mt of the total 368 mt capacity, which gives them power to influence price, distribution, supply, etc,” said Jigar Shah, head of research at Maybank Kim Eng Research.

India has about 40 cement makers, with top companies such as UltraTech, Ambuja, ACC, Jaiprakash, India Cements and Shree Cement controlling more than half of the market share.

Analysts said the Holcim-Lafarge merger will make it the biggest cement group in India with a capacity of 67 mt, or 18 per cent, of the domestic industry.

Ultra-Tech, the next largest cement company, has 60 mt of capacity. “Post the potential merger, there could be consideration for brand consolidation leading to better margins for Lafarge India’s product offering. Lafarge could also benefit from lower financing costs as Holcim currently has a better credit rating than Lafarge,” said Chirag Shah, analyst at Barclays Research.

Analysts said investors are still betting on large cement players such as Ultra-Tech cement, ACC and Ambuja Cements despite steep valuations. This is because many of their smaller peers have been weighed down by increasing debt. Analysts said there are multiple cement companies in South India scouting for buyers.