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Cement: MNCs gaining ground - Views on News from Equitymaster
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  • Jul 23, 2002

    Cement: MNCs gaining ground

    The cement industry has witnessed renewed activity from multinationals that are trying to further consolidate and strengthen their position in India. After lying in wait for a long time, international cement majors are now initiating steps to strengthen their position in the Indian markets. Consolidation in the cement industry was dominated by Indian companies buying out smaller players or acquiring strategic stakes in others.

    Multinational cement companies like Lafarge, Blue Circle and Ciments Francais had already started showing interest in the Indian cement industry from as early as 2000. The plan at that time was to grow inorganically by buying out large available capacities from domestic cement producers. These plans were not fully realised due to the forming of alliances like that of GACL-ACC and Grasim-L&T. Lafarge was the only multinational in the country with a significant presence in the east of the country till Ciments Francais entered the fray in 2001 by forming a joint venture company with Zuari Industries. While the industry has seen the entry of Ciments Francais in the country it has also seen the exit of Holcim, which ended its joint venture with Kalyanpur Industries.

    However, the exit of Holcim has been completely overshadowed by the entry of cement major Ciments Francais. The joint venture between Ciments Francais and Zuari Industries meant 2 m tonnes capacity in the southern region. The joint venture recently acquired Shri Vishnu Cements from India Cements, increasing its total capacity to 3 m tonnes. The alliance currently commands nearly 10% market share in the southern region.

    Lafarge has also continuously boosted its capacities in the eastern region. The company current capacity stands at 5 m tonnes representing a 21% share in the eastern region. Lafarge has plans to set up a green field capacity of 1 m tonnes in West Bengal over the next couple of years. This move indicates a changing trend among the cement MNCs. The initial strategy was to get a back door entry in to the Indian markets by way of acquiring existing capacities. However, Lafarge’s recent plan indicates that due to the dearth of acquirable large capacities, MNCs are exploring the options of setting up of green field projects in the country.

    All trends indicate that a higher level of consolidation is inevitable, but the question is when? Renewed interest by MNCs would definitely help speed up the process. The recent stake purchase in L&T by Grasim seems to have stemmed out of the need to keep the MNCs at bay, owing to concerns that multinationals with their deep pockets will try their best to disturb the fragile cement producers’ cartel in the country and gain market share.

    What ever be the short-term implications, in the long run increased consolidation is likely to benefit the industry and consequently improve the realisations for cement producers. And MNCs will play a big part in this, either by being part of this or by being the change agents in this consolidation drive by local majors.



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