UltraTech to ramp up domestic cement capacity by a third by FY26

Cement major on track to reach 131.25 mtpa by Q4

The country’s largest cement maker, UltraTech, will increase its capacity in India by a third by 2025-26 (FY26) from the current levels, even as rivals look to add scale through acquisitions.

JSW Cement recently picked up India Cements’ limestone mine and land in Madhya Pradesh (MP) for Rs 477 crore. Limestone is used to make cement. JSW Cement has since announced setting up a 5-million tonne per annum (mtpa) plant in central India. By 2024-25, it is looking to touch 25 mtpa in terms of capacity, from the present-day 17 mtpa.

Adani Group, on the other hand, has been scouting for cement assets to shore up capacity after completing the acquisition of Ambuja Cements and ACC from Holcim in a $6.5-billion deal last month. It denied speculation last week that it was in talks with Japyee Group for its cement business. The group had said earlier it proposed to double capacity to 140 mtpa, from 70 mtpa.  

In an after-results earnings call, UltraTech’s Executive Director and Chief Financial Officer Atul Daga said the firm was on track to reach 131.25 mtpa of capacity in India by the end of the January-March quarter (fourth quarter, or Q4) of 2022-23 (FY23), from 115.85 mtpa at the end of the July-September quarter (second quarter, or Q2) of FY23. By FY26, the company is looking to touch 153 mtpa in India, he said, as part of its Phase 2 expansion plan.

At a consolidated level, including international operations, UltraTech’s cement capacity stood at 121.25 mtpa at the end of Q2, from 120 mtpa achieved earlier. By FY26, the company is looking to touch around 160 mtpa in terms of capacity.

UltraTech has operations in markets such as the United Arab Emirates, Bahrain, and Sri Lanka, besides India.

“During the reported period (Q2), we commissioned Dalla (Uttar Pradesh) brownfield expansion of 1.3 million tonnes (mt). We have ended this quarter (Q2) at 115.85 mt of capacity in India,” said Daga.

“In Pali (Rajasthan), a greenfield plant is coming up. Dhar (MP) brownfield expansion is almost ready to roll out production. We should see commissioning of these plants in the October-December quarter,” he said.

These two projects alone, according to analysts, are expected to add around 7 mt in terms of capacity for UltraTech. The rest (7-8 mt) could come on stream in Q4FY23 since UltraTech has capacity addition on at other project sites across the country. 

At an earnings call, Daga said the company would commission about 15.4 mtpa of total capacity in India in the second half of FY23. This would be a mix of greenfield and brownfield expansion.

“We have already spent about Rs 2,900-3,000 crore on capital expenditure (capex) in the first half of FY23. The capacity expansion is being met out of internal accruals. This financial year, we expect cash outflow on capex to be anywhere between Rs 6,000 crore and Rs 7,000 crore," said Daga.

In a recent note on UltraTech, research analysts Sanjeev Kumar Singh and Mudit Agarwal at Mumbai-based brokerage Motilal Oswal said UltraTech was well-positioned to meet the growing cement demand in the country.

“The increased spending on housing and infrastructure augurs well for cement companies,” they said in their note, adding, “UltraTech’s capacity expansion has been progressing well across regions and will involve setting up integrated and grinding units, as well as bulk terminals.”

According to a recent report by CRISIL, cement volume growth in FY23 is likely to be in the region of 8-10 per cent - the highest since 2018-19. Growth will be aided by infrastructure and construction sectors, prompting key players to seize scale opportunities through acquisitions, as well as look at organic growth.