New Delhi [India], May 31 (ANI): Backed by healthy demand prospects for the sector, large cement companies are looking to increase their capacity and maintain market share through, organic and inorganic expansions.
According to rating agency ICRA, while organic growth is expected to continue in the medium term, cement companies are also preferring the inorganic route (either through acquisitions or through mergers) leading to consolidation in the industry.
The market shares of the top five cement companies increased to 54 per cent as of December 2023 from 45 per cent as of March 2015 and is expected to further grow to 55 per cent as of March 2025.
Eastern and western regions are leading the consolidation with a likely rise in the share of top five cement players by 22-25 per cent from 2015 to 2025.
The rating agency, in its report, said Southern India, though highly fragmented, may also witness some consolidation with an increase in the share of the top five cement companies from 40 per cent in 2015 to 50 per cent by 2025.
“Consolidation leads to synergies in the form of cost reduction and improvement in operational efficiency. The acquirer gets access to ready-made capacity, limestone reserves and prevents companies from the hassle of longer gestation periods,” ICRA said.
There were 15 mergers and acquisitions (M&A) in the last nine years with the average cost being lower than the cost of setting up an integrated greenfield cement plant. It led to capex cost savings, ICRA asserted.
ICRA’s outlook on the cement sector is Stable.
In 2024-25, revenues are expected to increase by 9-10 per cent and operating margins are likely to improve by 80-100 basis points (100 basis points is equal to 1 percentage point) to around 16.8-17.3 per cent.
The overall debt levels may be higher by 20 per cent in 2024-25 to fund the ongoing capital expenditure.
However, with a possible increase in operating profits, the debt protection metrics are likely to be comfortable, it is asserted. (ANI)
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