UltraTech to acquire 32.7% stake in India Cements to up South play

Open offer may raise total cost to Rs 7,100 cr

India’s largest cement maker UltraTech Cement on Sunday said it would acquire a 32.72 per cent stake in India Cements from its promoters and their associates. The deal, valued at Rs 3,954 crore, will trigger an open offer, which, if fully subscribed, will raise the total cost for UltraTech to Rs 7,100 crore.

After signing the share-purchase agreements and obtaining regulatory approvals, UltraTech will pay Rs 3,954 crore at Rs 390 per share for the stake in India Cements, the Aditya Birla Group-owned company said in a statement on Sunday. While this share purchase will push up UltraTech's stake to over 55 per cent in India Cements, it will trigger a mandatory open offer at the same price of Rs 390 per share, which is at a 4.11 per cent premium to India Cements closing price on Friday. “The open offer will be conducted subsequently after obtaining all approvals,” UltraTech said.
 

 

In Friday’s trade, India Cements share price closed at Rs 374.6 per share. Last month, UltraTech made a financial investment of Rs 1,889 crore for a 22.77 per cent equity stake at Rs 268 per share, acquiring this stake from billionaire investor Radhakishan Damani and his associated entities.

“Post this financial investment, the promoter group approached us as they wanted to sell their holding in the company, and we found it appropriate to acquire their stake,” UltraTech said. 

India Cements has a total grey cement capacity of 14.45 million tonnes per annum (mtpa), with 12.95 mtpa in the South, particularly Tamil Nadu, and 1.5 mtpa in Rajasthan. The transaction is subject to regulatory approvals and is expected to be completed in six months.

Aditya Birla Group Chairman Kumar Mangalam Birla said UltraTech Cement’s investments over the years, both organic and inorganic, had been designed to propel India to become a global leader in building solutions. “The India Cements opportunity is an exciting one as it enables UltraTech to serve the Southern markets more effectively and accelerates our path to 200+ mtpa capacity,” he said.

Jyoti Gupta, an analyst with stock broking firm Nirmal Bang, however, said: “It makes little business sense for UltraTech to add capacities through such an acquisition in a market where it already has capacities and expansions are underway.”

According to its July investor presentation, UltraTech operates 25 mtpa in South India and plans to add another 10 mtpa by FY27. This is excluding the capacity of 10.75 mtpa expected from the Kesoram Industries deal.

UltraTech on Sunday said the latest deal gave the company an opportunity to evaluate the optimisation or deferment of the existing capacity expansion plans in the Southern market. “This will help augment the company’s only integrated unit in Tamil Nadu – Reddipalayam Cement Works (1.4 mtpa), which has a paucity of limestone with limited lifecycle,” the company said.

Gupta from Bang also said: “If UltraTech maintains focus on capacity utilisation, it will keep cement prices suppressed impacting financials.”

However, other analysts also believe this move helps UltraTech prevent competition from gaining ground in the South market. 

UltraTech’s latest acquisition will put another 14.5 mtpa capacity between its closest rival Adani Cement and itself. As of June, UltraTech had an operational capacity of 149.5 mtpa in India and 154.9 mtpa overall (including overseas). Ambuja Cements-ACC (Adani-promoted entities) operated 77 mtpa as of March, excluding underway acquisitions.

All the top four cement makers in India are in a rush to add fresh capacities, to capture India’s infrastructure fueled demand. Of these, UltraTech plans to operate 200 mtpa by 2028, while Adani aims for 140 mtpa in the same period.

Adani-promoted Ambuja Cements has been on an acquisition spree, particularly expanding capacity in South India. Industry analysts see UltraTech’s latest move as also keeping Adani out of acquiring India Cements.

However, not everyone is convinced the deal is lucrative for UltraTech. “The deal would have made absolute sense for a group like Adani which looks to enhance pan-Indian presence,” said Gupta.