It is the clash of titans, even as the turf war heats up, both Adani and Birla eye India’s infrastructure boom and, in turn, their dominance over supplies of building materials.

Battle lines are being drawn in India’s cement industry as Gautam Adani’s rapid expansion sparks a race with fellow billionaire Kumar Mangalam Birla’s UltraTech Cement Ltd. to increase capacity and acquire assets.

Adani’s ambitious company and the leading player, UltraTech, have completed six deals in less than two years. UltraTech announced a seventh deal on Sunday to gain control of a prized regional company, and at least six smaller competitors are still up for grabs.

“Adani’s strategy when entering a sector is to dominate and aggressively compete,” said Aditya Kondawar, a partner at the wealth management firm Complete Circle Capital Pvt in Pune.

“Adani’s entry brought fresh competition, prompting UltraTech to also expand. When faced with competition, you either step up or step aside.”

Looking Forward

Adani Group’s primary entry in 2022 shook the local rankings with the acquisition of Ambuja Cements Ltd. and ACC Ltd, making it the second-largest cement maker overnight

However, it spent much of 2023 dealing with the fallout from a critical report by Hindenburg Research.

This year, the conglomerate has returned to its expansion plans, igniting a turf war in the cement industry as Birla’s established leader stands firm.

Having already made four acquisitions in the sector, Adani aims to double its annual production capacity to 140 million tons by 2028. The group is looking for more cement assets to expand its reach and secure key raw materials like limestone reserves.

According to anonymous sources, about $4.5 billion is set aside for acquisitions over the next two years.

Adani Group, which controls India’s largest private port operator, seeks to reduce costs significantly, even if it can’t match the cost efficiency of Chinese cement makers.

Transportation via sea or inland water is much cheaper than by truck, and Adani Ports & Special Economic Zone Ltd.’s network will be beneficial. Additionally, green energy from group firms can help reduce fuel costs.

The Battle For Dominance, Adani VS UltraTech Cement

Given India’s significant potential for infrastructure growth, the turf battle between Adani Group and UltraTech Cement is critical for both parties.

India aims to become a $5 trillion economy by 2025; hence, the demand for cement is projected to rise sharply, driven by large-scale infrastructure projects, urbanization, and housing needs.

Now, when it comes to Adani Group, entering and dominating the cement sector aligns with its broader strategy of becoming a leading player in various industries.

The same is reflected in Adani’s goal to double its annual production capacity to 140 million tons by 2028 and capture a significant market share. With an acquisition war chest of about $4.5 billion over the next two years, Adani aims to secure key assets and raw materials, such as limestone reserves, to sustain its growth and competitive edge.

The group’s control over India’s largest private port operator also gives it a logistical advantage, potentially reducing transportation costs and enhancing operational efficiency.

Defending Its Position

UltraTech Cement, as the current market leader, is facing the challenge of defending its position against Adani’s aggressive expansion. Hence, UltraTech’s strategic acquisitions and capacity expansions are crucial to maintaining its dominance.

The company has already announced its seventh deal to control a coveted regional player, showing its will to stay ahead.

To strengthen its market leadership, UltraTech acquired a smaller competitor last year. In June, it initially bought a minority stake in a Chennai-based cement maker, then increased it to majority control this week—a strategic move to defend against Adani.

UltraTech is also eyeing another potential acquisition.

According to sources familiar with Birla’s strategy, UltraTech aims to expand its operations and acquire more assets to reach an annual capacity of 200 million tons by 2027.

The Big Pie

India’s cement demand is expected to grow at a compound annual growth rate (CAGR) of 5-6% over the next few years, driven by government initiatives such as the Smart Cities Mission, the Pradhan Mantri Awas Yojana (PMAY), and extensive infrastructure projects like highways, railways, and metro systems.

The National Infrastructure Pipeline (NIP), which envisages an investment of over $1.4 trillion by 2025, indicates the sector’s immense potential.

According to Crisil Ratings, Prime Minister Narendra Modi’s ambitious infrastructure projects, ranging from airports and power facilities to roads, bridges, and tunnels, are expected to drive India’s infrastructure investment to 15 trillion rupees ($179.2 billion) by March 2026.

This will create a massive demand for cement, exceeding supply in the coming years and presenting expansion opportunities that neither Adani, Asia’s second-richest person, nor Birla can ignore.

Adani, which recently acquired Penna Cement Industries Ltd., has also shown interest in Jaypee Group and Orient Cement Ltd., according to local media reports. UltraTech has now also expressed interest in Orient Cement.

According to industry insiders, other potential targets include Saurashtra Cement Ltd., Mangalam Cement Ltd., Vadraj Cement Ltd., and Bagalkot Cement Industries Ltd.

The southern region of India is the most fragmented cement market in the country, with the highest installed capacity and many firms that haven’t expanded capacity in recent years, noted Sanjeev Kumar Singh and Mudit Agarwal, analysts at Motilal Oswal Financial Services Ltd., in a July report.

Singh and Agarwal wrote, “It is possible that a few of these entities might consider exiting the industry if they are offered favorable valuations.”

Looking Out

This region is the ideal hunting ground for both billionaires, who have already started closing deals.

Adani’s acquisition of Penna Cement in June aimed to expand its presence in southern India. Shortly after, UltraTech purchased a 23% stake in India Cements Ltd., a Chennai-based company with a capacity of nearly 14.5 million tons, to preempt any moves by Adani.

On Sunday, Birla’s firm bought an additional third of India Cements for $472 million, increasing its total stake to over 55%.

Birla said in a statement on Sunday, “This acquisition enables UltraTech to serve the southern markets more effectively and accelerates the path to our 200 million tons target.”

“The pace of acquisitions in the cement industry was inevitable due to government spending on infrastructure and housing,” said Aveek Mitra, founder of Aveksat Investment Advisory in New Delhi.

According to Mitra, India has about 100 listed and privately held cement makers, most with small market shares. In a June 13 note, Anupama Reddy, co-group head of corporate ratings at ICRA Ltd., wrote, “An asset block of 28 million tons is in the pipeline for acquisition.” M&A deals will continue as large incumbent players aim to maintain their market share.

Despite the aggressive expansion, it will still be challenging for Adani to surpass UltraTech. The gap between the two rivals is substantial and is expected to remain, based on announced capacity additions.

Avoiding The Lens

However, everything isn’t that simple; for one, both Adani and UltraTech will need to be cautious of scrutiny from India’s antitrust watchdog and avoid acquisitions in areas where they have high market share concentration.

While cement demand is strong now, it might decrease in four or five years, according to Jyoti Gupta, a research analyst at Nirmal Bang Institutional Equities. Smaller players like Dalmia Bharat Ltd., Shree Cement Ltd., and JSW Cement Ltd. are also scaling up.

“When infrastructure spending reduces and there is ample supply of residential properties, will there be enough demand to utilize all this added capacity?” Gupta said.

UltraTech Latest Acquisition

In the latest, it was reported on Sunday, that the Board of Directors of UltraTech Cement, owned by the Birla Group, has approved the purchase of a 32.72% equity stake in India Cements Limited from its promoters and their associates.

In June 2024, UltraTech made a financial investment in India Cements, acquiring a 22.77% equity stake at a price of Rs 268 per share. The promoter group expressed their desire to sell their remaining holdings in the company following this investment, and UltraTech decided it was appropriate to acquire their stake.

India Cements has a total capacity of 14.45 million tons per annum (mtpa) of grey cement, with 12.95 mtpa located in the South (particularly Tamil Nadu) and 1.5 mtpa in Rajasthan.

The transaction is subject to regulatory approvals; upon signing the Share Purchase Agreement (SPA) and obtaining the necessary regulatory approvals, UltraTech will pay Rs 3,954 crores at Rs 390 per share to acquire the 32.72% stake from the promoters and their associates.

This acquisition will trigger a mandatory open offer at Rs 390 per share, to be conducted after receiving all regulatory approvals.

This move enables UltraTech to serve the Southern markets better and accelerates its path to achieving a capacity of over 200 mtpa.

Mr. Kumar Mangalam Birla, Chairman of the Aditya Birla Group, commented, “UltraTech Cement’s investments, both organic and inorganic, are aimed at positioning India as a global leader in building solutions. Each investment in core sectors like cement boosts economic activity and progress. These investments have supported India’s nationwide infrastructure development, meeting the country’s growing needs for housing, roads, and other essential infrastructure. This, in turn, has significantly impacted the lives and aspirations of people.”

The Last Bit, India is looking for a significant overhaul in its infrastructure projects, and both Adani Group and UltraTech Cement are strategically positioning themselves to capitalize on the upcoming infrastructure boom, making this competition crucial for their long-term growth and market leadership.