Cement Sector Acquisitions Booming in India : Positive Forecast for Cement Sector Acquisitions in India: Report

Mumbai, March 24 (NationPress) The ongoing consolidation within the Indian cement sector is anticipated to yield three major advantages for acquirers in the medium term: an expanded geographical reach, access to vital limestone reserves, and enhanced economies of scale, as detailed in a report by Crisil released on Monday.

These benefits are expected to more than compensate for a slight rise in the financial leverage of the acquirers and consequently enhance their credit profiles in the medium term, according to the report.

The consolidation process commenced in fiscal 2024, with 51 MT of capacity already acquired and an additional 14 MT of buyouts announced, projected to be finalized by the first half of fiscal 2026, the report indicated.

While the industry has a history of rapid capacity acquisitions, the current phase, with approximately 11 percent of the installed capacity changing ownership, represents the highest rate ever recorded in a two-year span.

Manish Gupta, Senior Director at Crisil Ratings, stated: "The recent wave of acquisitions offers acquirers a chance to expand quickly and fortify their market position, along with more cost-effective access to captive limestone mines. Furthermore, nearly 92 percent of the capacity acquired will allow acquirers to broaden their presence in existing regions, resulting in a reduction of lead distances."

Inorganic growth also mitigates the elevated project implementation risks linked to organic growth, such as land acquisition, securing limestone mining leases, establishing clinker, grinding, and captive power facilities, and stabilizing the plant after commissioning, he added.

Ankit Kedia, Director at Crisil Ratings, noted: "A key motivator behind the recent surge in acquisitions is the attractive valuations. The average enterprise value of Rs 8,000-9,000 per tonne in this phase is on par with the cost of establishing a greenfield integrated cement plant. This is largely because around 81 percent of these were distressed assets sold at a discount. Additionally, over 90 percent of the capacities acquired were financed through existing liquidity and operational cash flows, with minimal dependence on external debt, keeping financial leverage controlled."

Following the acquisition-related expenditure of Rs 41,000 crore during fiscals 2024-2026, the net debt to EBITDA ratio for the sector is projected to rise to 1.2-1.4 times in fiscal 2026, compared to approximately 1.0 time at the beginning of fiscal 2024, as per the Crisil report.

Despite this increase, the overall credit profile of the sector is expected to improve, as consolidation will bolster the business profiles of acquiring entities through enhanced access to limestone—an essential raw material, better market reach, and increasing scale economies within their respective regions, the report elaborates.

Moreover, the Crisil report suggests that in the medium term, consolidation could also diminish competitive pressure, enhance pricing power, and improve the ability of players to navigate commodity cycles, potentially leading to improved margins.