Cement
is probably the only industry in India where the prices
have been fluctuating very rapidly for the last few
years in the absence of a proper pricing mechanism.
A consolidation in this aspect, even though a reality
had remained a distant possibility and the year 2003
had started with a good note for the cement industry
in this regard. There were some remarkable consolidation
efforts put in by the big players. The acquisition of
the L&T's cement division by Grasim would not have
come at a more appropriate point of time. It had triggered
one more round of consolidation in the Indian cement
industry. Post acquisition, the much sought after consolidation
is clearly visible in terms of numbers, like Grasim
now becoming the market leader in India in terms of
cement production, manufacturing an annually estimated
30 million tonnes of cement. But, it is the pricing
consolidation that is keeping analysts' fingers crossed.
With
this acquisition, the three major players, i.e., GACL-ACC
combine, Grasim and India Cements almost share 55% of
the domestic cement production capacity among themselves.
There are already rumors doing rounds that these three
players could lobby together to put in place a proper
price recovery mechanism for cement, thereby addressing
the long wished pricing consolidation. All eyes are
now on this much expected `pricing consolidation' and
the way it is going to happen in the highly fragmented
Indian cement industry. The market had given the go
ahead to the `negotiated' acquisition deal between L&T's
cement division and Grasim Cements, an Aditya Birla
Group Company, where the later is buying out the former
in a three-stage demerger process. The stocks of the
two companies have risen sharply on the announcement
of the verdict of L&T in favor of Grasim. "With
this deal, the top four players would control close
to 55% of the market share of Indian cement industry
and the consolidation gains in terms of pricing would
follow shortly," opines Manish Bhandari, Analyst
(Cement Industry), HDFC Securities, Mumbai. He further
adds, "Grasim is well poised to harness the upturn
in the cement business." Does the deal augur well
for the domestic cement industry? Yes, is the obvious
answer from the industry analysts. "This deal augurs
well for the domestic industry, where nearly 50% of
capacities are fragmented which is in the hand of small
players. |
