InvestorQ : What impact do you see if Adani group doubles the cement capacity acquired from ACC and Ambuja Cements?
Lavanya Subramanian made post

What impact do you see if Adani group doubles the cement capacity acquired from ACC and Ambuja Cements?

Anamika Sodhani answered.
2 weeks ago

In India, the one thing we normally associate with the Adani group is aggression and the passion for scale and big ideas. It has pursued scale in all its key businesses including ports, green energy, transmission and city gas distribution. Obviously, cement was not going to be any different. When Adani took control of ACC and Ambuja Cement it acquired cement capacity of 70 million tonnes per annum (TPA). That still puts them in second spot, behind Ultratech Cements, which has the highest cement capacity in India of 125 MTPA.

What is making Adani so confident about taking such a big bet on cement when even the likes of Holcim are selling out? Adani is betting big on the India growth story and the surge in cement demand. Apart from the trigger of post-COVID recovery, the government of India has given an aggressive infrastructure push which is also expected to provide a massive thrust to cement demand. One must also not forget that the Adani group, with ports, power and infrastructure, itself has a massive captive demand for cement.

Adanis are moving in rapidly to take control of both the companies and Gautam and Karan Adani have already taken over as the chairman of the boards of Ambuja and ACC respectively. Adani already has 63% stake in Ambuja and over 55% in ACC too. To enhance its stake in Ambuja, the board approved issue of warrants, diluting the equity of Ambuja by nearly 25%. Post the conversion of warrants, the Adani stake in Ambuja will go up to 72% and given them substantial control. That will the first step to their plan to double capacity.

According to Adani, the real opportunity is evident when we compare the per capita consumption of cement in India and compare the same with China. India, which is the second largest consumer of cement, has per capita consumption of 250 KG compared to 1,600 KG in China. That gives a conservative headroom of 5-6 times for Indian cement demand to grow. Cement has a GDP multiplier of1.5 times; so any sharp recovery in GDP will automatically translate into cement demand. That is what Adani is betting on.

The bottom line is that this is eventually translating into a fight for supremacy between the Adani group and the Aditya Birla group. Adani controls 14% of Indian cement capacity but it is still much smaller than Ultratech, which controls 25% of India’s cement capacity. Adani has charged aggressive plans to double cement manufacturing capacity to 140 MTPA by 2027. But, even Ultratech plans to enhance cement capacity to 200 MTPA by 2030. The next few years may end up as a cement battle between Adani group and Ultratech Cements of the Aditya Birla group. Now you can expect pressure on prices as a glut comes in.