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Indian cement industry sees US$3.3 billion in merger and acquisition activity since January

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World Cement,

According to data from VCCEdge, the Indian cement industry has seen seven M&A deals worth a total US$3.3 billion since January 2013 and analysts suspect there will be further consolidation in the future. Private equity (PE) firms are reportedly interested in the cement sector due to its long-term growth potential and the fact that it is not threatened by imports and foreign exchange fluctuations. Western and Eastern India remain a key area of interest for those acquiring cement plants, as demand there remains robust. In the East, for example, demand is growing at 11.4%, ahead of capacity addition, which is growing at 8.6%. Interestingly, of the seven deals made this year, just one is domestic. The rest comprise foreign investment from firms such as Lafarge and CRH, who are perhaps better placed to fund the deals in cash. The one domestic deal was funded partly in cash, but mostly in debt transfer and equity issuance. Meanwhile, expansions continue despite the glut of supply in some regions, such as Southern India. Speaking about capacity additions, H.M. Bangur, Managing Director of Shree Cement, told that he expects cement companies to be able to readjust production output to fall in line with growth numbers within the next year. “Cement firms usually start beefing up capacity two-three years in advance. None of the firms expected GDP growth to fall so sharply,” he said, adding that he expects the cement industry to grow at 7 – 8% per year. The report also quotes Deepak Ladha of Ladderup Finance Ltd as saying that the cement sector ‘grows at 1.5 times of GDP’.

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