Mid-size cement companies plan big expansion as demand revives



Source: THE ECONOMIC TIMES

In an industry where size matters more than any other attribute, cement majors in the country have been acquiring large distressed rivals. But those with regional ambitions are also getting bigger, leading the capexcycle revival in the world’s second-largest concrete market.

Mid-level companies, which have a localised footprint in India’s highly regional cement industry, have revealed plans to more than double their capacity, and enhance output to about 15-20 MT in the next four or five years through a combination of brownfield and greenfield expansions. The exercise also seeks to help diversify their geographic bases.

After recently calling off the acquisition of Jaypee Group’s two cement plants in central India, South-based Orient Cement plans to spend around Rs 3,600 crore until 2023 to almost double its capacity to 15 MT. The expansion entails adding clinker and grinding units to its existing facilities at Devapur in Telangana by March, 2021.

This will be followed by adding 3 MT grinding capacity at Kalaburagi in Karnataka, and a likely split grinding unit in Bengaluru to serve the high-consumption markets of Bengaluru and Mysuru, going deeper into Kerala. To enter the eastern market, Orient Cement is also contemplating a grinding unit in Odisha.

“This is the cycle of the cement industry,” said Deepal Khetrapal, MD at Orient Cement. He said that demand has been picking up since the past four months of FY18.

Another medium-sized company based in the peninsula, Penna Cement, plans brownfield expansions in the South and East and, later, a greenfield project in the North.

From the current 10 MT, Penna will be taking its aggregate capacity to 16 MT in the coming 2-3 years and will be spending close to Rs 3,500 crore on this expansion. Penna Cement is also making use of the port-based model of supplying cement to major eastern markets — Kolkata and Odisha — by taking the sea-route, which will help it reduce costs while simultaneously enabling it to enter these markets.

“We want to be one of the lowcost players in the eastern markets by taking the sea route and this is also probably the only way to not restrict ourselves in the South,” Vikram Reddy, CEO at Penna Cement, told ET during one of his visits to Mumbai.

The company is still to decide the funding route for its planned greenfield expansion, which will entail three integrated cement plants in the northern markets, built with an estimated cost of around Rs 2,000-2,500 crore. Reddy said that the company could either use the IPO route or look at taking on debt, but sources said that it plans to raise Rs 1,500 crore from the market.

Last year, JK Cements had said that it would add 8 MT to its existing output to take the total capacity to 18 MT by 2022, expanding its footprint into the central and eastern markets from its base market in the limestone-deficit north India. Similarly, French cement giant Vicat Cement, which fully acquired its Indian partner Sagar Cement in 2014, is also expanding. Based again out of the southern market, the company will be spending Rs 1,735 crore on expansions to add 4 MT to its existing capacity of 2.75 MT in Karnataka.

The cement industry has witnessed some extreme churning since last year, with some largeticket acquisitions by big players such as UltraTech.

Mid-level cement companies that do not have the bandwidth for such acquisitions have quickly decided to scale up. “Going forward, I feel there are going to be 4-5 big players in India and a dozen mid-sized players and to reach there, everybody in the game will add capacities to stay relevant,” Reddy said.

Khetrapal says the industry may expand at 6-8% in the next 4-5 years, but contends that demand growth has not reflected itself in the pricing, which is still a challenge in most markets.

Source: THE ECONOMIC TIMES