India Ratings & Research (Ind-Ra) expects Lafarge SA (Lafarge, Fitch Ratings issuer default rating: 'BB+'/RWP) and Holcim (Holcim: 'BBB'/ztable) to consolidate their Indian operations, post their proposed merger. The consolidated operations may form India's largest cement group player (by capacity), pushing UltraTech Cement (53.9mtpa, latest annual report) to the second position. However, the details about the consolidation of the Indian operations of Lafarge and Holcim (including time lines) are awaited.

There are chances that the newly combined entity may have to divest some assets from its Indian operations to comply with regulations. If the regulator requires a divestment of certain assets from the combined entity, it is most likely to be asset(s) from the eastern region, where the entity will have the largest market share.  However, even after the asset sale, the combined entity would remain the largest Indian cement player.

Ind-Ra expects the merger to further accelerate consolidation in Indian cement industry, where the current top two players may become aggressive to maintain their market share. After the consolidation of Lafarge India and Holcim India, the top five players are likely to hold around 50% of the market share of the cement industry after considering incremental capex.

The consolidation of cement industry in the hands of several well established industry leaders may unleash competitive pressure in the cement industry, thereby keeping a check on prices. The regulator has alleged that several cement players, including those with limited economic viability, are running cartels. Often, as observed in industries such as telecom and airlines, four to six large competitive players are capable of keeping pricing competitive. Thus, it is assumed that consolidation of the cement industry at the hands of industry leaders would not necessarily be detrimental to the interests of customers.