Adani Enters Cement Business. Holcim Exits.
Recently the biggest cement player in India gave one interesting statement. They said, ‘Cement industry demand will grow at 7%. It is expected to flourish due to growing demand for housing, infrastructure growth, and industrial growth etc.
Holcim which is among the largest Building material manufacturer across the globe selling its entire stake in Tei India’s leading cement players - Ambuja Cement and ACC to Adani Group. Out of Holcim’s global capacity, India makes up to 23% and 27% in sales volume. After having such a great market share in the cement industry, why would they exit a lucrative market, India altogether?
Also, What’s in for the Adani Group which has no prior experience in the cement industry?
Among the other markets that Holcim operates in, India is the only market that offers a potential for high future growth as the country continues growing rapidly and has a favourable business environment. Holcim is playing a long term game here. It has been divesting its stake in several other emerging markets over the last few years, to be in line with its "Strategy 2025 – Accelerating Green Growth". Cement division doesn’t align with this strategy, because it is responsible for significant pollution. Instead of cement, the company is moving towards more sustainable business solutions. Between 2019 and 2021, Holcim had divested almost 3.1 billion worth of assets all over the globe. Apart from Indonesia, the company has divested its stakes in Brazil, Madagascar, Northern Ireland, Malawi, Zambia and other areas.
What’s in for the Adani Group?
Mergers and acquisitions are normal in the Indian cement industry mainly because there is a long gestation period for the new plants to be built. Cement industry is under the watch of Competition Commission of India. In 2010, it had fined Rs 6000 crores on ten cement companies for their alleged engagement in cartel formation. Later Rs 6,700 crores in 2016. Again in 2018, it had claimed that six cement companies had formed a cartel in the industry.
Adani’s existing businesses include the Adani Group's ports and logistics business, real estate business, and energy business. Both Ambuja and ACC will benefit from synergies with the Adani infrastructure platform, especially in the areas of renewable power and logistics, where Adani portfolio companies have experience and expertise.
The Indian economy will soon see the biggest foreign capital outflow (FDI), we are talking of over $10 billion going out of India. That too, at a time when the economy isn't doing too well, there is a looming jobs crisis, and inflation is touching new highs.
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