Dalmia-Jaypee deal: Battle for third spot in cement market intensifies

Shree Cement adding 9 mtpa of capacity in the next 15 months, HM Bangur says; total cement production capacity of company to jump to 56.4 mtpa...

New Delhi-based Dalmia Bharat’s Rs 5,666-crore acquisition of Jaypee Group's cement business this week has put the spotlight on the next wave of consolidation in the sector.
 

The battle for the third spot in the domestic cement market has intensified with the deal.
 

Shree Cement is the country's third-largest player with a total capacity of 47.4 million tonnes per annum (mtpa). Dalmia Bharat currently has an installed capacity of 37 mtpa, which will increase to 46.4 mtpa following closure of the deal, the company said. The Jaypee acquisition would give Dalmia Bharat access to 9.4 mtpa of cement capacity, it said.
 

In a conversation with Business Standard, HM Bangur, chairman, Shree Cement, said that the company was adding 9 mtpa of cement capacity in the next 15 months, taking its total installed capacity to 56.4 mtpa.
 

“We have a strong agenda in terms of organic growth and remain committed to it,” Bangur said. “That doesn't mean that inorganic growth is something we are not looking at. In fact, we did consider Jaypee's cement assets from an acquisition perspective. But from an overall point of view in terms of where we want it to be geographically, the acquisition wasn't fitting in. So, we opted to give it a pass,” he said.
 

“From an organic growth perspective, there are three plants that will come up in the next 15 months. This will be in Purulia, West Bengal, Suratgarh in Rajasthan and an integrated cement plant in Andhra Pradesh. This should increase our capacity by 9 mtpa. The capacity expansion will keep us in the third spot irrespective of the consolidation in the market,” Bangur said.
 

As things stand now, Dalmia Bharat will get access to plants located in central India, including in Madhya Pradesh, Chhattisgarh and Uttar Pradesh.
 

Cement analysts indicate that central India represents 15 per cent of the country's total cement demand. It has a potential for growth as the per-capita consumption of cement is the lowest in the region at 170 kg.
 

“Dalmia Bharat currently operates in Madhya Pradesh, Chhattisgarh and Uttar Pradesh. But the company has no manufacturing units there. On completion of the Jaypee acquisition, the assets will provide Dalmia Bharat a higher market share. It will also allow the company to sell cement at competitive prices,” Harsh Mittal, cement analyst at Mumbai-based brokerage ICICI Securities, said.
 

Analysts at Motilal Oswal said that central India would register a demand growth of 7-8 per cent over the next two-three years.

Supply addition by players would be closer to 9 per cent in the same period. In the last few years, newer entrants such as JK Cement and JK Lakshmi Cement, both separate companies, had stepped into central India.
 

In October, JSW Cement announced that it had acquired a 100 per cent stake in Springway Mining, a subsidiary of India Cements, in Madhya Pradesh. The deal also gave the company substantial access to limestone reserves, to the tune of approximately 106 million tonnes. The acquisition also included a mining lease that was valid until 2065. 
 

With the acquisition, JSW Cement announced it would invest over Rs 3,200 crore in order to set up an integrated greenfield cement manufacturing facility in Madhya Pradesh. JSW Cement would also set up a split grinding unit in Uttar Pradesh, it said.