Adani, Aditya Birla locked in a race for cement business expansion

Competition in India’s cement sector is intensifying; Adani Group’s cement venture raised its capacity expansion target to just over 10%, two weeks after larger rival UltraTech Cement Ltd raised its own target by a similar percentage.

Billionaire Gautam Adani, who entered the cement industry three years ago by purchasing Holcim AG’s India business and became India’s second largest cement producer overnight, later also acquired smaller cement producers such as Sanghi Industries, Penna Cement and Orient Cement.

Also Read | Shree Cement’s profit remains stable. The volumes are not very large.

The group, which can produce 107 million tonnes per annum (mtpa), said on Monday that it will double the size of its business since acquiring Ambuja Cement and ACC Ltd from Holcim in 2022, adding another 15 mtpa per annum by FY28 to reach 155 mtpa. Of course, this additional capacity will come from a process called debottlenecking, or optimizing existing operations without major new construction and to increase production. lower cost.

UltraTech Cement, the flagship of the Aditya Birla Group, is not sitting idle either. On October 18, India’s largest cement producer, with a capacity of 167 mt/year, increased its own capacity increase target to 240 mt/year, adding 22.8 mt/year in the same period. Additionally, it aims to achieve 200 mtpa by the end of FY26, a year ahead of schedule. Since Adani’s entry into the cement business, UltraTech has increased its capacity by 51 million tonnes per annum through the acquisition of India Cements Ltd and Kesoram Industries Ltd and its own internal expansion.

Together, the two rivals have added 90 million tonnes/year of cement production capacity in the past three years through the acquisition of smaller companies and the construction of new production facilities. This exceeds the production capacity of Shree Cement, India’s third largest cement producer, at 56 mt per annum. At the current rate, the two cement manufacturers are poised to combine more than half of India’s total annual cement production capacity of 688 mt.

Also Read | India’s cement demand is growing rapidly. So what will the sector’s carbon emissions be?

The latest expansion plans have focused on improving profitability at a time when the market is seeing some signs of waning competitive intensity.

“The (Adani) announcement can be seen as a strategic move to bridge the competitive gap, signaling the company’s intention to match its rival’s expansion plans,” said Satyadeep Jain, principal analyst for cement, metals, mining and utilities at Ambit Capital.

Ambuja Cements Chief Executive Officer (CEO) Vinod Bahety said on Monday that the expansion plan will not involve significant capital expenditure as it will be a debottlenecking exercise.

Adani’s cement business under Ambuja Cements recorded a sharp rise in net profit, largely due to the company reversing its earlier provisions following favorable court rulings and tax assessments. Standalone profit after tax more than doubled ₹1,387.55 crore in September quarter ₹500.66 crore a year ago.

Total provisions ₹1,179.71 crore was canceled following the positive orders of the high court, the company said. The tax rebate benefit was partially offset by a one-off hit from withdrawn government subsidies in West Bengal.

The company reported revenue independent of its operations ₹5,139.48 crore, up 26.2% year-on-year. Company’s revenue in the same quarter last year ₹4,073.17 crore. However, the company’s revenue fell almost 7% sequentially as the second quarter was a seasonally weak quarter.

CEO Bahety said in his statement, “This quarter has been a remarkable period for the cement industry. Despite the negative effects of long-lasting monsoon rains, the sector will benefit from the negative effects of many positive developments such as GST 2.0 reforms, Carbon Credit Trading Program (CCTS) and abandoning coal.”

Also Read | Why do cement companies need a concrete price correction more than a GST cut?

Ambuja Cements said the company will also install 13 mixers at its facilities over a period of 12 months, which will optimize mixing and increase the share of premium cement.

The company said demand was moderate in the second quarter, rising 4% year-on-year. Stating that demand is expected to increase with the reduction of GST from 28% to 18%, improvement in economic sentiment, and increased investments from both the public and private sectors, the company reconfirmed its annual growth forecast as 7-8%.

Shares of Ambuja Cement rose 2.36% on NSE on Monday. ₹While it was 578.75, the benchmark Nifty index increased by 0.16%. The company announced the results during market hours.