Enter Cemex: Cement, too, needs consolidation

The reported entry into India of Mexico Cemex SAB de CV, the world's third-largest cement maker, through the acquisition of the cement business of Nagpur-based Murli Industries, is welcome, as it signals further consolidation and competition in the domestic market. The world's two largest cement makers, Holcim and Lafarge, are already present in India. Recently, French cement firm Vicat bought a controlling stake in Bharathi Cement Co, while private equity firm KKR picked up a stake in Dalmia Cement. Competition will intensify as more global majors buy Indian cement companies and infuse more dynamism into a sector that has relatively limited scope for imports and hundreds of small firms. The entry of large global players will also help lower costs. India is already the second-largest producer of cement with a capacity of around 275 million tonnes - after China's 1.06 billion tonnes. Sure, cement companies had to operate below capacity when demand slumped during the downturn, putting pressure on their profits.

However, domestic consumption will rise with infrastructure investment worth an estimated $1 trillion over the next five years. So, augmenting capacity is a must. Consolidation will help stabilise prices in the long run. M&As in the cement space began over a decade ago when Ambuja Cements acquired control of ACC. Later, Swiss major Holcim bought controlling stake in Ambuja Cements. Holcim holds around 46% stake each in ACC and Ambuja Cements. Its capacity is a tad lower than that of the Aditya Birla group, the country's largest cement producer, that controls Grasim Industries and Ultratech Cement. Lafarge entered the country in the1990s, taking over Tata Steel's cement division, but the Jaypee group accounts for the thirdlargest chunk of capacity. Foreign cement companies are, once again, eyeing acquisitions in India. This is logical with the economy poised to grow at over 9% a year.

The top five cement companies control over 60% of the market. Tax sops for mini plants have created fragmented capacity scattered across numerous sub-twolakh-tonne plants. Tax on cement must be unified under GST to produce quality cement to build emerging India.