Holcim's exit may narrow imbalance in cement market, aid pricing power

Industry Outlook Team | Tuesday, 19 April 2022

A potential exit by Holcim from the Indian markets would benefit the domestic cement sector as the considerable investment required by any potential buyer would slow down the expansion pipeline of ACC and Ambuja Cements over the next 2-3 years, thereby narrowing the demand-supply imbalance and aiding pricing power.

"Delays in the sell-off owing to its mega-deal size, regulatory approvals, etc., could potentially derail the focus on the expansions," said Rajesh Ravi, analyst, HDFC Securities.

"This would be good news for the industry as a slower pace of capacity addition will reduce the

demand-supply imbalance, supporting the industry's pricing power."

Ambuja Cement has a grinding capacity of 31.4 million tonnes per annum (mtpa) and plans to expand to 39.9 mtpa by December 2024. ACC has a grinding capacity of 34.9 mtpa, which will be expanded to 39.7 mtpa by the first half of 2023.

"From a long-term perspective, the new owner would have to expand aggressively to protect market share loss, which has ailed ACC and Ambuja in the past 10 years," added Ravi.

While ACC shares declined 2.7% on Monday, Ambuja Cement stock fell 1.7%. Other cement stocks such as UltraTech Cement, Grasim, Shree Cement, and Dalmia Bharat declined 1-2% on Monday.

According to reports, Holderind Investments (Holcim) is planning to exit its Indian operations and is evaluating a stake sale option in Ambuja Cement.

Holcim entered India in 2005 through acquisitions of Ambuja and ACC. Currently, it owns 63% in Ambuja and 5% directly in ACC. Ambuja owns 50% of its subsidiary ACC. On a consolidated basis, these two entities have 66 million metric tonnes of cement capacity, accounting for 12% and 15% of capacity and sales market shares, respectively.