The merger impact

The merger impact

Urbanisation and population growth are megatrends that drive the growth of the construction sector in the emerging markets of China, India, and Russia. Investment activity in Europe and North America has been weak with the economy at a standstill, whereas demand in the emerging markets has continued to grow. A few years ago, India was expected to show stronger growth but due the slowdown, the demand has been muted. However, it is just a matter of time for the demand to pick up, and in a big way, besides; what's more, the key players in the cement industry have been building up capacity to meet the future demand.

For the past five years, the Indian cement industry has been witnessing a major consolidation drive. In such a scenario, the latest report on the merger of Lafarge and Holcim, is creating an entity with a stock market value of $ 55 billion, therefore, is being watched with great interest. Analysts observe that the deal would help them slash costs, trim debt and cope better with the soaring energy prices and weaker demand that have hurt the sector since the 2008 economic crisis. Moreover, the merger is expected to have a direct and far reaching impact in the domestic market as both the companies have been on an expansion drive to build capacity.

Reports indicate that the combined entity will become the Number One cement maker in India, with a total annual installed capacity of 66.9MT, or 18 per cent of India's total cement capacity of 368MT which means the combined entity will have a dominant hold over key regions including north and east.

The industry feels the intervention of the Competition Commission of India (CCI) is a must as the merger can alter the market dynamics, given that the merger stands for a significant market share and pricing power. Holcim India, through subsidiaries Ambuja and ACC, has a combined capacity of 58.5 MT which combined with Lafarge's 8 MT will emerge as the largest capacity overtaking the leader, Ultratech, which has a capacity of 59.6 MT after acquiring the Gujarat units of Jaypee Cement.Post expansions at both Ultratech and Lafarge will see the Lafarge Holcim company emerge as the new leader in capacity in India.

The sands are shifting as the weather heats up to bring home the new leader at the hustings.

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