Dalmia Cement (Bharat) Ltd. (DCBL), a wholly owned subsidiary of Dalmia Bharat, signed a binding agreement on Monday to purchase clinker, cement, and power plants from Jaiprakash Associates Ltd. and its associate for Rs. 5,666 crore.

The cement plants in Madhya Pradesh, Uttar Pradesh, and Chhattisgarh have a total capacity of 9.4 million tonnes, 6.7 million tonnes of clinker capacity, and 280 megawatt thermal power plants.

The acquisition will allow Dalmia Bharat to expand its presence in the central region of India, which has one of the lowest per capita cement consumption rates in the country. Dalmia Bharat aims to become a pan-India cement company with 75 million tonnes of capacity by FY27 and 110130 million tonnes by FY31.

Jaiprakash Associates has decided to exit the cement business entirely in order to repay its lenders' loans and focus on its other core areas of business. "The flagship company, Jaiprakash Associates Ltd. (JAL), has been taking proactive steps to reduce its debt, repay lenders, and meet its commitments. JAL divested more than 20 MTPA cement capacity to M/s. UltraTech Cement Limited between 2014 and 2017, while selling its controlling stake in more than 2 MTPA cement capacity to Dalmia Group in 2015 "Manoj Gaur, executive chairman of Jaiprakash Associates, agrees.

The transaction comes months after the Adani family entered the cement industry by purchasing Holcim's stakes in Ambuja Cements and ACC. The value of the Holcim stake and open offer for Ambuja Cements and ACC was around $10.5 billion, making it Adani Group's largest acquisition to date. In October, India Cements sold its entire stake in Springway Mining Private Ltd to JSW Cement for Rs 477 crore, further consolidating the country's cement sector.

Due to persistent cost-side pressures, rating agency ICRA has revised cement producers' operating profit margins downward by 160-200 basis points in FY23 compared to earlier estimates in April 2022.

In the first half of FY23, total cement volumes in India increased by 11% year on year to 187 million million tonnes, owing to continued strong demand from rural housing and a pick-up in infrastructure activity.

According to ICRA, cement volumes are expected to increase by 7-8% in FY23 to around 388 million MT (16% higher than pre-Covid levels of 334 million MT in FY20), driven by demand from the housing, both rural and urban, and infrastructure sectors.

According to CRISIL, cement makers' operating profitability will fall around 15% year on year to 900-925 per tonne in the fiscal year 2022-23, as increases in realisations will not be enough to offset increases in coal, petcoke, and diesel prices, which have pushed up the average cost of production.

Higher demand will cushion cement makers' credit profiles by mitigating the impact of lower profitability on absolute operating profits and cash accruals.

"Cement volume growth this fiscal will be driven by non-housing segments, where offtake is expected to rise more than 15%," said Koustav Mazumdar, associate director at CRISIL Research. "Demand from the infrastructure segment will be aided by government spend, while demand from the industrial/commercial segment will be driven by growing investment in data centres and warehousing, as well as the previous fiscal's low base."