Consolidation in the cement sector around the corner - Views on News from Equitymaster

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  • Mar 31, 2000 - Consolidation in the cement sector around the corner

Consolidation in the cement sector around the corner

Mar 31, 2000

According to newspaper reports, a number of cement producers from the north are planning to consolidate themselves into a 5 m tonne company. The move is aimed at taking on the increasing competition it the sector. That the Indian cement sector offers lucrative opportunities for investment has been accepted by all. It is no coincidence that Holderbank, Lafarge and Cemex are all aggressively seeking to acquire cement capacity in the country. The domestic sector too has responded by an aggressive consolidation that has been limited to the larger players for example Guj Ambuja's acquisition of a 14.4% stake in ACC. However amidst all this small scale manufacturers have been left out.

In view of intensifying competition in the domestic sector, the decision by these companies to consolidate themselves is a step in the right direction. The move will benefit the members of this group in terms of better pricing power and greater economies of scale. This will also have a positive impact on their margins.

The consolidation in the cement sector has been long over due. The high degree of competition in the sector has often been cited as a reason for continued softness in prices despite the surge in domestic demand. With consolidation, undercutting in the sector will be reduced, and this will benefit the entire cement sector.

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