In a bid to gain market share, Bua Cement, Nigeria’s second-largest cement maker, is planning to disrupt the industry by expanding its capacity, diversifying its products, and increasing its exports.
The Nigerian cement industry, an oligopolistic market is dominated by three major actors: the Dangote Cement Plc, BUA Group, and Lafarge Africa Plc responsible for 99 percent of production.
An oligopolistic market is a type of market structure in which a small number of large sellers control most of the market. Oligopolistic markets typically have homogeneous products, few market participants, and inelastic demand.
In light of recent capacity expansions, there have been major shifts in the market share of industry players.
A report by Cardinal Stone explained how Dangote Cement, the industry leader by installed capacity, lost market share from 63.5 percent to 61.2 percent in one year. WAPCO, the second largest cement company by installed capacity (10.5 million MT), was overtaken by BUA Cement, with its market share declining from 21.8 percent to 18.2 percent.
BUA Cement’s aggressive capacity expansion over the past year resulted in its market share increasing from 17.6 percent to 19.1 percent.
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Owned by Abdul Samad Rabiu, BusinessDay’s findings showed BUA cement is now the largest cement producer in North West, South-South, and South-East Nigeria, and has gained an additional 9.4 percentage points of market share since consolidating with CCNN.
“In terms of increasing market share, looking at production capacity, Bua Cement has started the drive by increasing their capacity line,” Mustapha Umaru, an equity research analyst at CSL Stockbrokers Limited.
BUA Cement has been expanding its capacity to gain market share from the leader, Dangote Cement, and has overtaken Lafarge Africa. From 2018 to 2022, its installed capacity increased from 5 million tonnes (MT) to 11.0 million MT, at a compound annual growth rate (CAGR) of 21.8 percent.
According to Cardinal Stone, “This strategy has begun to pay off, as new plants are driving increased cement output. This, coupled with rising cement prices (reflected in the revenue/tonne growth), has further boosted BUA Cement’s revenue growth. WAPCO’s volumes have remained relatively flat, with the company relying on price increases to drive revenues.”
However, slowing demand due to the tough macroeconomic environment has forced BUA Cement to reduce its ex-factory price to maintain its market share.
BUA Cement made the first move in the competition to gain prominence this year by reducing the ex-factory price of its cement from N5,500 to N3,500, citing the need to boost the country’s building materials and infrastructure sectors.
This, it disclosed, is coming on the heels of the expected coming stream of its two production lines at Okpella and Sokoto (with a combined capacity of 6 million metric tonnes per annum) in December 2023.
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Femi Awofeso, a research analyst with one of Nigeria’s consulting firms said, “BUA’s latest cement price adjustment is either a strategic attempt at cost leadership to out-compete rivals or a niche repair strategy to compensate for a potential loss in market volume because of the geopolitical trade challenges arising from the decisions on Niger Republic, among others.”
However, Umar noted that there is an opportunity to grow its demand in the north where most of its demand comes from since it is expanding.
“It tends to grow its demand since it is expanding but it comes with a threat of high cost given the current devaluation of the currency, as well as rising energy and transportation costs, which might put pressure on its bottom lines,” Umar said.
There are also smaller cement producers in Nigeria, such as PureChem Industries Limited (0.9MT), Mangal Industries Limited (3.0MT), and Mandugu Cement (5.0MT).
Additionally, IBETO Group is building two new cement plants in Effium (1.0MT) and Enugu (2.2MT), and expanding its existing plant in Nkalagu (3.0MT). These projects could increase Nigeria’s total cement production capacity to over 70 million MT by 2025.
History of Bua Cement
BUA Cement was founded in 2008 and began operating in the same year with its 2.0MT floating cement terminals, “BUA Cement 1”, which are specifically designed to unload bulk and bagged cement. In 2009, BUA acquired the Cement Company of Northern Nigeria (CCNN) and the Edo Cement Company, increasing its production capacity to 2.0MT.
This acquisition was made through BUA’s holding in Damnaz Cement Company Ltd, which was the majority shareholder in CCNN at the time.
By 2019, BUA had expanded its capacity by an additional 6 metric tonnes (bringing its total installed capacity to 8.0 metric tonnes), on the back of the commissioning of two 3.0 metric tonnes lines in Obu, Edo State.
The consolidation of the group’s cement businesses across the country in 2020 made the new entity the third largest cement producer in Nigeria, after Lafarge (10.5 metric tonnes) and Dangote Cement (35.3 metric tonnes). BUA also became the dominant cement force in the Northwest region.
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Capacity
Nigerian cement companies are expanding their capacity to meet future demand, driven by the potential for increased trade under the African Continental Free Trade Agreement (AfCFTA).
Dangote Cement, the market leader, has added two 3 million tonne (MT) plants in the past two years and is on track to commission another 6 million (MT) plant in Ogun State.
BUA Cement has also expanded its Kalambaina Plant in Sokoto by adding a 3 million (MT) line. BUA Cement is the only cement company with a production facility in the North West region, and its expansion is aimed at consolidating its market share in this region.
Notably, Dangote Cement also serves the Northern market from its Kogi plant via its truck fleets.
WAPCO, on the other hand, is focusing on debottlenecking its existing plants, the Ashaka and Ewekoro plants to unlock additional plant utilisation benefits instead of the new capacity rollout.
BUA Cement is also planning to build another 3 million MT line in Obu, Edo State, which will raise its installed capacity there to 9 million MT by 2024.
“The facility is also close to the country’s capital, Abuja. Upon completion, Bua Cement will be equipped to compete with WAPCO’s combined 10.5 million MT installed capacity and Dangote’s Cement 12.0 million MT Ibese plant in Southern Nigeria,” Cardinal Stone said.
Financial status
BUA Cement was listed on the Nigerian Stock Exchange in 2020 with a market capitalization of N1.18 trillion, becoming the third most capitalized stock on the exchange. Its market capitalization raced to N2.5 trillion in less than 18 months, despite having a relatively low free float of around 1.6 percent (compared to 9.6 percent for its domestic peers).
In December 2020, BUA Cement successfully issued N115 billion in Series 1 fixed-rate senior unsecured bonds under its maiden N200 billion bond issuance program – the largest corporate bond ever issued in the Nigerian debt capital markets.
The offer was oversubscribed with a bid-to-cover ratio of 1.2 times, meaning that investors subscribed for N22.8 billion more than the N115 billion offered. Before the recent issuance, the company’s capital structure was heavily skewed towards equity, with debt accounting for only around 3 percent of total invested capital.
The company’s strong reputation and track record in the capital markets have given it a good foundation for further fundraising activities, such as the $500 million loan it obtained from the International Finance Corporation (IFC) in June 2023.
Since listing on the exchange, BUA Cement has recorded revenue growth over the past two years. Revenues have grown more than threefold to N361.0 billion in 2022 over the past five years, driven mainly by volume and price growth and N2221 billion in the first half of 2023.
The company has been able to ramp up production by commissioning the BUA Cement Line 4 plant in 2022 and increasing the utilization of its existing plants.
