The cement industry in the country is likely to see a spate of mergers and acquisition (M&A) activities in the near future. Mergers and acquisitions will be triggered by the fragmented nature of the industry, where the top six manufacturers control 60 per cent of the market, while the remaining 57 operate in the have a combined market share of 40 per cent.

Even the stock market is abuzz with rumours about smaller cement companies being taken over by larger companies. Stocks of most small cement companies were in the limelight for the past couple of weeks. India, with a total installed capacity of 144 million tonnes per annum (mtpa), is today the second largest cement manufacturer in the world after China.

Over the past couple of years, the structure of the industry has undergone a sea change on account of consolidation. According to analysts with Prime Securities Gujarat Ambuja taking a stake in ACC and Grasim acquiring L&T's cement division, may be a distinct possibility. The acquisition of Cemco (L&T's cement division) triggers the much-awaited consolidation process

The top four players — Grasim, Cemco, ACC and Gujarat Ambuja — account for 41 per cent of the total installed capacity, ensuring discipline and reduced volatility in cement prices, they added.

"In the near future, consolidation of capacities through mergers and acquisitions will be the focus area for major cement players as green field projects require huge capital investments and involve a considerable gestation period," analyst said. This is in line with the global trend, where only 2 or 3 cement producers dominate the entire market in their respective countries.

The cyclical nature of this industry has meant that only large players are able to withstand the downturn in demand due to their economies of scale, operational efficiencies, centrally-controlled distribution systems and geographical diversification.

The demand supply gap in the industry, which was as high as 25 per cent in 2001-02 primarily due to faster capacity creation over growth in consumption, appears to be under correction as this gap has reduced to under 12 per cent in 2003-04 and is expected to decline to 9 per cent by the end of the current fiscal.

This is one more reason for cement prices to remain firm over the past months despite lean period during monsoon.