Cement industry may continue to witness consolidation

Cement industry may continue to witness consolidation

Dalmia Cement's recent acquisition of Adhunik Cement reaffirms the belief that the cement industry will continue to witness consolidation. One of the major factors for the same is the long time required to setup a new cement plant; nearly three to five years.
The cement industry is a cyclical industry and the industry has started showing signs of an up cycle after being down for nearly four years. By the time a new plant is set, the industry will be ready for a down cycle. So, to reap the advantages of increasing demand in the up cycle, the bigger players are and will look to acquire the smaller companies.
India's cement sector is highly fragmented with top 10 companies constituting three-fourths of the industry. The smaller plants, due to lack of scale, are rendered uneconomical to run.
The pricing discipline in the industry has helped the smaller players to survive till now. The situation is grimmer in South where the utilisation levels are close to 65 per cent as against the pan India utilisation levels of 75 per cent.
The situation is expected to continue for at least a couple of years and some companies doubt whether the pricing discipline will continue in the future. The smaller players have also reduced their premiums from 50-60 per cent levels to 30 per cent levels.
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