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A slew of capacities — ranging from one to three million tonnes - awaits its turn to be acquired. But this waiting period is likely to last for at least another year. The two domestic players likely to be interested are Gujarat Ambuja and Grasim. They are still in the process of consolidating their hold over ACC and Larsen and Toubro respectively.

Gujarat Ambuja cannot afford to take much more debt now. Grasim would also prefer to strengthen its equity holding in L and T for which an open offer has been announced. More important, it would also want to wait till the L&T's cement business demerger proposal takes a concrete shape. But these two companies may be better placed now than a year ago to throw their hat in the ring for more capacities. Favourable SEBI rulings on open offer requirements have ensured that the costs of establishing a hold on ACC and L&T have been on the low side.

In case SEBI had required open offers at prices paid to Reliance and the Tatas by Grasim and Gujarat Ambuja respectively, the latter two would have been hard-pressed to pursue acquisitions. This risk is now more or less out of the way. But they are unlikely to hurry into further acquisitions till taking a firm hold on their crucial acquisitions.

Global players such as Lafarge and Cemex also face problems related to the economic slowdown and its effect on earnings and cash flows.

Lafarge is also coming off a big-ticket acquisition of Blue Circle Victor. But these companies are sure to look at India as the growth opportunities over a ten-year period holds considerable promise. Even if one assumes conservative growth rates of around 6 per cent, demand may touch 200 million tonnes. The present capacity is about 145 million tonnes.

The emerging situation is unlikely to hold place for players with capacities in the one-four million-tonne range. The likes of Grasim-L&T and Gujarat Ambuja-ACC control close to 30 million tonnes each.

Their clout in marketing and pricing can only increase as better demand-supply balance emerges. This will make life extremely difficult for the smaller players. The problems faced by Chettinad Cement, Dalmia Cement, Mangalam Cement and Prism Cements provide a good pointer. Shree Cements — due to better operating efficiencies — and OCL — due to its presence in the eastern market — are the only two well-placed to weather difficult periods endemic to any highly cyclical industry. For the rest, it is a matter of waiting for the buyers to emerge at acceptable prices.

Sure enough, some have been trying hard to sell. But they have found no takers. As a result, Century Textiles and Kesoram Industries have put their plans to sell their cement units on hold.

This will also have to be status for others of their ilk for a year at the least, till buying interest emerges. Their negotiating power with domestic bigwigs such as Grasim and Gujarat Ambuja has also suffered due to the dominance established by this twosome in the last three years.

Eventually, consolidation is inevitable in a highly fragmented industry. Close to 45 per cent of capacity is with more than 35 players. But for now consolidation continues to be on pause mode. This is much like the situation that has prevailed in the last year or two. Barring the big-ticket deal for L & T by Grasim and a buy-out of Sri Vishnu Cements by Italcementi, not much has happened on the consolidation front. These two deals offered strategic advantages to the would-be buyers.

In this backdrop, to buy into stocks of smaller cement companies in the hope of making takeover-driven gains would be a high-risk strategy. The returns may not be good enough. There is also the problem of zeroing in correctly on the potential sellers from a fairly long list of stocks.

S. Vaidya Nathan

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