UltraTech,
, and shares declined 5%, while shares fell more than 6.5%. Scrips of other cement companies such as , , and Ramco Cement fell more than 8%. The Sensex ended flat on Friday.
UltraTech Cement on Thursday announced a ₹12,900 crore capex plan of adding 22.6 million tonnes per annum (mtpa) capacity by FY25. This will contribute to overall domestic cement capacity increasing at a compounded annual growth rate (CAGR) of 5.5% over FY22-25, compared with an estimated overall 7.5-8% growth in demand over the same period.
Further Consolidation Seen
In addition, analysts expect other companies to announce capacity expansions too as they seek to maintain capacity shares and market shares. “In the recent past, the cement sector has overcome weak demand and high fuel cost with better utilisation and pricing,” said Pankaj Pandey, head of research, . “However, with significant additional capacity announcements, there will be pricing pressure.”
Navin Ramesh Sahadeo, an analyst at
Securities, said UltraTech’s move may trigger a race towards maintaining or increasing capacity share given that several peers have strong balance sheets. “In current times of weak demand, low pricing power, high fuel cost, and uncertainty related to the entry of the Adani Group, any significant capacity announcement is likely to hurt the sector sentiment further,” he said.
The Adani Group recently acquired and Ambuja Cement from Holcim for $10.5 billion. The combined capacity of these companies are 70 million tonnes per year. The combined cement capacity of the Aditya Birla group, which owns Ultratech, is 120 million tonnes.
India’s overall cement production capacity was nearly 545 million tonnes in FY22 and the capacity utilisation was about 85%.
Analysts expect further consolidation in the Indian cement sector. “We are expecting further consolidation in the sector with larger players cornering major market shares,” said Ronald Siyoni, AVP – Research, Sharekhan. “The near-term rise in supply is likely to impact smaller players in the industry. UltraTech’s expansion may be followed by a faster ramp-up of capacity by other players like Adani post Holcim deal completion, Shree Cement, Dalmia Bharat, etc.”
