Holcim Ltd, the world’s largest manufacturer of cement, is selling its businesses in India, which include its stake in Ambuja Cements and ACC Ltd. Holcim decided to quit India after 17 years of operations. Adani Group agreed to buy the Swiss giant’s India assets—two publicly listed cement companies Ambuja Cements and ACC—in a $10.5 billion deal through an offshore special purpose acquisition vehicle. Besides being the largest-ever acquisition by the Adani family, this deal is also the largest M&A transaction ever in the construction material domain in India.
What is in it for Holcim?
Holcim’s exit from India is part of its strategy to lower its carbon profile by 2025. The sale of the Indian operations, which include 31 cement plants (accounting for 26% of their total emissions), would help lower Holcim's CO2 profile. As part of this strategy, the company already started divesting its non-core assets in Asia, Russia, and Brazil. Holcim announced that the cash generated from this sale would be diverted to sustainable construction solutions and products such as green roofing and mortars. In 2021, Holcim acquired American roofing business Firestone.
Why This Acquisition Makes Sense for Adani?
Setting up a cement business is tedious and complicated, with many factors such as the availability of land that meets environmental norms, the plant’s proximity to a coal mine (coal is a critical component in cement manufacturing), and setting up an extensive distribution network across the country. For Adani to build plants and meet the national demand inorganically would have been difficult and time-consuming. ACC and Ambuja are well-established brand names with plants across India aided by a network of thousands of distributors. This deal makes Adani the second-largest cement manufacturer in India, after UltraTech Cement. The group has a well-diversified portfolio split into energy and utilities, transport and logistics, construction, and other emerging businesses. The inclusion of cement would help the group meet the cement requirements of its portfolio through in-house production. Adani Power, a group company that generates and sells large quantities of fly ash to the cement industry, could be used to improve the quality of in-house cement and lower the cost of production.
Effect on the Industry — Outlook
India is the second-largest producer of cement, accounting for 8% of the global cement industry value for FY2021. According to GlobalData, the Indian cement industry is projected to grow over 7% in 2022. The growth would be aided by factors such as infrastructure development, greater demand for housing, increase in rural income, and industrial growth. The Holcim-Adani deal has the potential to turn around the fortunes of the cement industry as consolidation in the industry is expected to bring in production discipline, leading to price stability in the long run.
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