"Smaller players will either have to merge with larger companies or they will be taken away by foreign firms," said R C Gupta, president, Mangalam Cement, part of the B K Birla group. In the short-term, it might be a setback for the industry, but in the long-term it would augur well, he added.
French company Vicat SA today bought a 6.67 per cent stake in Sagar Cements for Rs 700 a share, showcasing the vulnerability of the highly fractured industry, which has more than 50 players - mostly small and marginal.
According to a source in one of the leading multinational cement companies having its operations in India, "In an intense competitive scenario, smaller players cannot tolerate the pressure of rising input costs on all fronts and cannot increase cement prices. Either they will sell off their business for good prices or they will be shut down."
Already, six foreign firms - Holcim, Lafarge, Heidelberg, Italicementi, Cimpor and DCH - have operations in the country. Industry players said it is difficult for small cement players to survive in such a competitive environment.
Kamakhya Chamaria, managing director, Barak Valley Cements, said, "Deals similar to that of Vicat- Sagar Cements will continue to happen. If any foreign company approaches us, we will have to see the benefits we will get before taking any decision."
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He added that a few years ago, a foreign firm had signed an MoU with Barak Valley, "but the deal did not go ahead". He said that at present no foreign cement company has approached the firm.
Top officials of smaller cement firms acknowledged the fact that more consolidation in the industry is on the cards. "If one gets benefits in such deals and have no other option, then what can be done? Selling will be the only way out," said an official of another small cement firm.
Sagar shares closed at Rs 388.10, a gain of 3.2 per cent over the previous close of Rs 376.05 on the Bombay Stock Exchange.