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AP Photo/Gautam Singh
All smiles.
CEMENT WARS

After a tough week, India’s sixth-richest man finally has something to smile about

Barely a week after Kumar Mangalam Birla, chairman of the Aditya Birla group, was summoned by a Delhi court as an accused in a case linked to India’s unraveling coal scam, a failed merger between global cement giants, Switzerland’s Holcim and Lafarge SA of France, is likely to bring some joy to India’s sixth richest man.

Holcim and Lafarge merger would have created India’s biggest cement company—overtaking Birla’s UltraTech Cement.

With an annual production capacity of 60.2 million tonnes, UltraTech is the country’s biggest cement maker by at least 1.5 million tonnes annually. Birla wants to increase UltraTech’s capacity to 70 million tonnes by 2016.

India is currently the world’s second largest cement producer and the demand is only poised to increase in the coming years as the Narendra Modi government kickstarts investments in the infrastructure sector in Asia’s third largest economy.

After it was first announced in April 2014, the $40 billion (Rs2.51 lakh crore) merger between Holcim and Lafarge is in jeopardy as both sides differ on leadership and financial terms.

“If the merger had happened, Holcim and Lafarge would have become the largest in India and they might have become more powerful in market dynamics,” Nitin Bhasin, head of research at Ambit Capital, told Quartz. (Ambit and/or its associates have a financial interest in ACC cements, a subsidiary of Holcim.)

But whether a Holcim-Lafarge combine would have been more profitable than UltraTech is still doubtful, Bhasin said.

In India, Holcim owns ACC and Ambuja Cements, which have a combined annual capacity of 58.75 million tonnes, while Lafarge has a total cement production capacity of 11 million tonnes. The merger between the companies would have created a total capacity of 70 million tonnes annually for the new company, overtaking UltraTech by at least 10 million tonnes annually.

In February 2015, India’s competition commission had written to Lafarge and Holcim to divest some of its assets in eastern India to prevent a monopoly after the companies had said that they were likely to merge.

And for Birla, the failed merger could not have come at a better time.

According to a report by Angel Broking, UltraTech will benefit from an increase in demand as it has been timely in expanding capacity via organic growth and acquisitions.

The brokerage expects UltraTech’s revenues to grow at a compounded annual growth rate of 17.8% up to the 2017 fiscal. On the other hand, competitors ACC and Ambuja are not expected to report higher revenue growth—volumes are expected to grow less than 10%—since they have hardly added any capacity in the past few years.

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