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Adani Group in negotiations with Heidelberg Materials

It was revealed that the latest acquisition to be made by the Adani Group in the cement industry could be the India-based Heidelberg Materials business. The Economic Times newspaper reported that negotiations between the companies have been initiated with a tentative value of $1.2 billion. The Adani Group is keen and interested in closing the deal quickly, looking to avoid an auction than may involve facing other competing buyers. However, there may be some disagreement over the actual cement production capacity of Heidelberg Materials’ businesses in India.

The press indicated that Heidelberg Materials’ capacity in India was 14 million tons per year, but this could include the rotary mill plants that the company has as well as integrated cement plants. Heidelberg Materials claimed to have a capacity of 12.1 million tons per year across three integrated cement plants, four grinding plants and one terminal, all in 12 states. Data from the Global Cement Directory 2024 suggests this refers to the group’s integrated cement capacity. The plants are split roughly equally between subsidiaries Heidelberg Materials India and Zuari Cement. Heidelberg Materials entered the Indian cement industry in 2006 when it acquired Mysore Cement, Cochin Cement and established a joint venture with Indorama Cement. The cement company later acquired Zuari Cement when they bought Italcementi in 2016. The group had only four integrated cement plants in India until May 2024, when they closed their clinker production at its Ammasandra plant in Karnataka.

In 2021, Heidelberg Materials CEO Dominik von Achten shared that the group had considered selling any plant after a business review – everything was available for sale. Analysts had identified Indonesia at the time as a possible target for a sale in developing markets, but this ultimately did not come to fruition. At that time India was not in the picture. However, Holcim sold its businesses in this market in 2022, which were acquired by the Adani Group for US$6.4 billion. This, in turn, sparked a rivalry in the Indian cement industry between market leader UltraTech Cement and the Adani Group. Both companies are now in a race to build production capacity through expansion, new plants, and acquisitions.

One reason why Heidelberg Materials may have made the decision at this point to enter into negotiations with the Adani Group can be reflected on their recent financial reports. In 2023, the company had stated that cement and clinker deliveries had increased moderately, due to persistent massive overcapacity in its core markets. Then, in 2024, it noted that deliveries declined slightly in the first half of the year and attributed this to overcapacity in southern India. The subsidiary reported a net loss of €6.3 million in 2023. An article by Holtec Consulting published in the October 2023 issue of Global Cement Magazine implied that capacity utilization was at 56% in 2023, which would be the lowest of any region in the country. This is a particular problem for the company given that Zuari Cement is based in the south.

The sale of 12.1 million tons of cement production capacity per year for $1.2 billion suggests a price of $99 per ton, a similar number to what the group paid when they bought Holcim’s assets in India in 2022. This may explain why Adani Group is trying to avoid an open sale of Heidelberg Materials’ assets.

One strategy that the Adani Group could implement to achieve its goal could be to formally merge its two major cement companies, Ambuja Cements and ACC. This certainly would make sense in terms of synergy savings but moving all mining and leasing rights could be challenging. The Adani cement group is on an expansion pathway, with a capacity of 140Mt/y planned by 2028. All the smaller cement companies in the country are potential targets.

Source: https://www.globalcement.com/