Cement Industry Consolidation to Strengthen Acquirers' Credit Profiles: CRISIL
The ongoing consolidation in India's cement industry is set to benefit acquirers through wider geographical reach, access to crucial limestone reserves, and economies of scale. These advantages are expected to outweigh the marginal rise in financial leverage, leading to an improved credit profile over the medium term.
The consolidation wave, which began in fiscal 2024, has already seen 51 million tonnes (MT) of capacity acquisitions, with another 14 MT in buyouts expected to be completed by the first half of fiscal 2026. This phase marks the largest capacity transfer in two years, with 11% of the industry's installed capacity changing hands—the highest ever in such a short period.
Says Manish Gupta, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, “The recent spate of acquisitions is providing the acquirers an opportunity to scale up quickly and strengthen their market position, as well as access to captive limestone mines more economically. Additionally, ~92% of capacity being acquired will enable acquirers to expand footprint in their existing regions and result in lower lead distance3.
Inorganic growth also obviates the higher project implementation risks associated with organic expansion, in terms of procurement of land, tying up limestone mining leases, setting up clinker, grinding and captive power capacities, and stabilising the plant post commissioning.
Says Ankit Kedia, Director, Crisil Ratings, “One of the major drivers of the surge in acquisitions recently is reasonable valuations. The average enterprise value of Rs 8,000-9,0004 per tonne in this round is comparable to the cost of setting up a greenfield integrated cement plant. That’s because about 81% of these were distressed assets and were sold at a discount. Plus, over 90% of the capacities acquired were funded through existing liquidity and operating cash flows, with minimal reliance on external debt, keeping financial leverage in check.”
Post the acquisition related payout of Rs 41,000 crore over fiscals 2024-2026 for acquisitions, the net debt to Ebitda ratio for the sector is expected to inch up to 1.2-1.4 times in fiscal 2026 from ~1.0 time at the start of fiscal 2024.
Despite this, the sector’s overall credit profile will improve as consolidation will strengthen the business profile of acquiring entities with improved access to limestone – a key raw material, better market accessibility, and rising scale economies in their regions.
