Institutional sources said mergers and acquisitions are going to be the order of the day over the next couple of years leading to consolidation of the cement sector.

Since FIs have large exposures, both in terms of loans as well as equity holding, in cement companies a uniform policy would facilitate smooth takeovers and mergers.

Industrial Development Bank of India has also prepared a study on the cement industry covering almost the entire gamut such as its growth, technology, performance, all India demand, regional distribution of demand and supply and the problems and prospects of the industry.

The study is proposed to be circulated among the FIs, cement industry and policy makers.

The financial institutions also want cement companies to adopt suitable restructuring strategies to achieve economies of scale, improvement of technology andcost reduction.

So far, the FIs haven't had any major role to play in financing of more than six acquisitions over the past year and a half, including the Rs 450 crore acquisition of Raasi Cements and Rs 243 crore acquisition of Narmada Cemnets. However, the Rs 550 crore Tisco's cement division acquisition is being part-funded by debt from the domestic financial institutions.

Last year alone witnessed as many as half a dozen takeovers and mergers, including the largest acquisition of Tisco's 1.8 million per annum cement division by Lafarge for about Rs 550 crore. The consolidation process in the cement industry began last year, with the Rs 800 crore India Cements taking over Raasi Cement for Rs 450 crore and then acquiring Vishnu Cements. The other major acuisitions being the Rs 200 crore acquisition of CCI's Yerraguntala in January 1998 by India Cements, Rs 243 crore acquisition of Narmada Cements by Larsen & Toubro and Grasim's acquisition of Sri Digvijay Cements and Dharani Cements for Rs 292 crore andRs 53 crore respectively. And the latest one in the series being the demerger of Indian Rayon's cement business into Grasim, which helped Grasim climb up the ladder to become the third largest player.

The institutions' willingness to be part of the acquisition and merger game would certainly aid the speedy completion of the process as the acquirer would not be stuck for want of quick funds, industry observers said.

Further, with the prospects of a recovery round the corner, the FIs would not like to be left out in the cold and certainly like to be part of the consolidation.

Interestingly, the proposal to formulate a policy on fundings of mergers and acquisitions follows the reluctance on the part of the FIs only a few months ago to fund the expansion plans of cement companies due to sluggish demand.

In the first half of 1998-99 alone, projects involving Rs 1,740 crore were added or revived, but during the same period, projects worth Rs 1,696 crore were dropped citing sluggish offtake and low cementprices as the main reasons.