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It’s Adani vs Birla in race to cement India’s status as infrastructure powerhouse

Gautam Adani knows that India’s infrastructure ambitions are huge and the spending on creation of new bridges, roads, residential and commercial spaces will only rise multifold as India focuses on spending its way out of the pandemic-induced slowdown.

Adani acquired Ambuja and ACC from Swiss giant Holcim for $6.5 billion making him India’s second largest cement producer instantly just behind Birla-led UltraTech cement. Both will vie to capture a bigger share of India’s growing infrastructure pie.

The acquisition was swift even though UltraTech and JSW had also bid for Holcim’s stake. The company aims to become India’s largest cement maker and will double capacity to 140 MTPA from the current 70 MTPA by 2030. With fresh fund infusion of 200 billion rupees from new owners, the entity has enough of a “war chest to scale up new expansions, organically or inorganically,” Prateek Kumar, a Jefferies analyst, said.

“What makes cement an exciting business is the headroom for growth in India, which exceeds that of every other country well beyond 2050,” Adani Group chairman Gautam Adani said.

He said India has a 7x headroom for growth compared to China as the per capita consumption in India is at 250 kg vis-à-vis China’s 1600 kg.

“As several of the government’s programmes gather momentum, the long-term average growth in cement demand is expected to be 1.2 to 1.5 times the GDP. We anticipate growing at twice this number,” he added.

Adani isn’t stopping just at that. A recent report suggested that the group is looking at buying Jaypee Group’s cement business. The deal is expected to be valued in the range of Rs 3,298-4,120 crore, an ET report cited people with knowledge of the matter as saying.

If the deal goes through, it will further cement Adani’s position in the buildings-material space and on track to achieve the goal of becoming the largest cement maker in the country.

Its main rival UltraTech Cement, part of the Aditya Birla Group, has plans to spend Rs 12,886 crore to increase capacity through brown field and green field expansion.

It claims that the capacity will reach close to 160 MTPA after the latest round of expansion and will meet country’s future needs for housing, roads, and other infrastructure.

What’s driving the push

An expanded focus on India’s infrastructure sector to pull the economy out of lethargy has made cement sector a lucrative bet for India’s top conglomerate. The appetite for cement is only going to surge as India builds more housing for its people and create more capital assets like roads, bridges.

Finance minister Nirmala Sitharaman raised India’s capital expenditure outlay for the current fiscal to Rs 7.5 lakh crore, up by more than 35 per cent compared to last fiscal.

The Modi government has maintained a razor sharp focus on expediting the speed of infrastructure creation. The PM GatiShakti initiative aims to speed up the existing infrastructure projects. The Network Planning Group constituted under the initiative has examined 229 critical infrastructure projects and given recommendations to fix the gaps.

The upcoming Budget is expected to keep the focus intact on capital expenditure and usher in reforms that will accelerate the pace of infrastructure creation.

Even though India’s economic growth rate has been pared by the IMF, it still will be one of the fastest growing economies in the current fiscal and continue to attract foreign investors even as the world stares at a recession.

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