Gautam Adani’s meteoric rise as the world’s ninth richest person began in the 1990s with a port on India’s west coast and a politician who is now prime minister. The rest is all about finding the next industry that will expand his debt-fueled empire. The port brought in coal, liquefied gas and palm oil, and so Adani became involved in these and nearby businesses. Once they started supplying coal to power plants, they entered mining and electricity generation and distribution. He piped gas to Indian cities, and set out to harvest solar and wind power. It was logical to increase its dominance in logistics by owning airports, grain silos and data centers, as was selling the cooking medium: it had to refine Indonesian palm-oil arriving at Indian ports, of which it is now He owns 13.
Finally, if the group was going to build infrastructure, why not produce cement? Adani is paying $10.5 billion in its recent expansion. In this field, his rival is not Mukesh Ambani, the only Indian tycoon richer than Adani, it is another billionaire. Kumar Mangalam Birla comes from old money, unlike Adani, a first generation entrepreneur. His great-grandfather, who diversified from the textile trade to jute manufacturing and more, was a confidante of Mahatma Gandhi during India’s freedom struggle. Birla’s father, influenced by the post-1947 socialist turn, globalized the group of goods by expanding into Indonesia, Thailand and the Philippines. Birla acquired Novelis in 2007 to become the world’s largest aluminum-rolling firm.
But then Birla had to deal with the 2008 financial crisis, followed by a boom in demand for China’s goods and a protracted costly entanglement in telecommunications, an industry disrupted by Ambani’s 2016 cheap data and free voice calls. While the government-backed defense for Vodafone Idea Ltd has kept it from stomaching, a new battle has begun. Adani is challenging the Birlas for cement in India’s vast and expanding market.
It is no surprise that Adani’s acquisition of Holcim India received an instant response. Birla-controlled UltraTech Cement Limited has announced a capital expenditure of 12,900 crore to increase its cement capacity to 22.6 million tonnes per annum. This works out to $75 per ton. Adani is paying nearly double this year to acquire an estimated 73 million tonne per annum capacity at two Holcim units, Ambuja Cements and ACC. If Adani is going to buy premium in a big way, Birla will manufacture cheaply. the game is on.
Birla’s telecom business collapsed when Ambani waged a price war. But it will be difficult for Adani to beat the Birlas in the cement family sector. Birla, who was worth $6.5 billion in early 2013 when Adani was not even a billionaire, is now nearly $85 billion behind. But he knows his cement: UltraTech’s current capacity is about 120 million tonnes per annum, which gives it a market share of 20%, ahead of the 12% Adani just acquired. However, it is not a sure lead. As noted by Kotak Institutional Equities, Adani has the option of expanding to 100 million tonnes relatively cheaply at $80-90 a tonne. This will cut down on its acquisition cost.
UltraTech has an advantage of $3.20-$3.90 over Holcim based on how much it can earn per ton before interest, taxes, depreciation and amortization. Kotak says Adani can close the gap by merging the two acquired firms, eliminating royalties to Holcim, and saving costs through waste heat recovery. But Birla has no choice. That, too, will enter adjacent industries like paint.
It is too early to say who will win India’s building materials war, though one thing is certain: Birla will not take any other challenge lightly. In 2017, when he decided to merge his Idea with Vodafone’s India business, he may have thought that scale would protect him from the continued pricing attack by Ambani’s Reliance Jio. It didn’t. The government won a case in the Supreme Court over past dues of cellular firms, putting Vodafone Idea’s existence in doubt. In the end, New Delhi had to offer a bailout to prevent the telco market from becoming a Reliance-led monopoly.
Cement is not as highly regulated as telecommunications. But Birla should still be sorry for the ease with which Adani beat its rival bid – and by another Indian billionaire – for any liability arising out of a pricing case brought by India’s Trustbuster for Holcim’s assets. agreeing to take
However, the real question before Birla lies deeper. If Adani plans to dethrone him as the king of cement of India, what is the correct response: fight or run? His great-grandfather, the patriot Ghanshyam Das Birla, bet on Gandhi and won against the British rulers and his companies such as Andrew Yule and Company. Going up against Adani, who also sees himself as a nationalist businessman, is perhaps nothing less than a gamble. India of Prime Minister Narendra Modi.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.