UltraTech announces Rs 12,886 cr capex plan as competition grows in cement

Bracing for stiff competition, the firm looks to boost capacity by 22.6 mtpa

UltraTech, the country’s largest cement maker, on Thursday said its board had approved a new capital expenditure (capex) plan of Rs 12,886 crore, as the firm braces for competition in the sector.

The capex, the company said, would be to increase capacity by 22.6 million tonnes per annum (mtpa) through brownfield and greenfield projects. This would entail setting up integrated and grinding units as well as bulk terminals across the country, UltraTech said, with commercial production from these units going on stream in a phased manner by financial year 2024-25 (FY25).

The capacity expansion would be undertaken at a cost of $76 per tonne of cement, the company said. In a statement, Chairman of the Aditya Birla Group, Kumar Mangalam Birla, said the new capacity expansion plan was a significant milestone in the ongoing transformational journey of UltraTech.

"The company has more than doubled its capacity over the last five years and is committed to meeting India’s future needs for housing, roads, and other infrastructure. This investment is backed by a strong conviction on India’s growth potential as well as a deep and nuanced understanding of the market dynamics of the cement industry,” Birla said.

The announcement comes a fortnight after the Adani group upstaged UltraTech and JSW Cement to acquire Ambuja Cement and its subsidiary ACC from Holcim AG for $10.5 billion.

The deal had put the Adani group at number two in the cement sector in terms of installed capacity at 70 mtpa, after UltraTech, which has 120 mtpa of installed capacity.

Analysts had indicated that UltraTech and JSW Cement would focus their attention on speeding up their capacity expansion plans in a bid to counter Adani. The latter (Adani) had indicated that it was keen to double its capacity to 140 mtpa in the next few years.  In a recent analysts call, UltraTech had said it was on track to complete its existing expansion projects, including adding around 16.5-17 mtpa of capacity in FY23, of a total expansion plan of around 19.5-20 mtpa. This would take its capacity to around 137 mtpa by the end of FY23, sector experts said.

The new round of capex activity that UltraTech has announced would take its total installed capacity to 159.25 mtpa, in line with its broader objective of touching 160 mtpa in the next few years, analysts said.  JSW Cement, on the other hand, intends to raise its capacity to 25 mtpa by FY24, from 16 mtpa at the moment, said experts.

“Both UltraTech and JSW Cement will continue to look at inorganic growth opportunities. However, there are not enough large targets to go after, following the Adani-Holcim deal. What you have are smaller players in the market. Organic growth is a more effective way of adding scale for UltraTech and JSW Cement, although both companies will keep a close watch on how Adani manoeuvres the market,” said Manish Valecha, lead cement and construction analyst at Anand Rathi Securities.