UltraTech picks up 23% in India Cements as sector battle hots up

Aditya Birla Group-owned UltraTech Cement to purchase 70.6 mn shares for non-controlling financial investment

Kumar Mangalam Birla-promoted UltraTech Cement on Thursday announced the acquisition of a 23 per cent stake in Chennai-based India Cements Ltd (ICL) for Rs 1,889 crore amid an intensifying battle to dominate the sector.

The transaction came two weeks after the Adani group’s Ambuja Cements announced a deal to acquire full control of Penna Cements, a South India-based company, at an enterprise value of Rs 10,422 crore. 

UltraTech, the country’s largest cement maker with a consolidated capacity of 152.7 million tonnes per annum (mtpa) of grey cement, purchased 70.56 million shares of ICL at an average price of Rs 268 apiece from billionaire investor Radhakishan Damani and his associated entities in two block deals. The company said this was a “non-controlling financial investment”.

 

N Srinivasan and other promoter groups of ICL will continue to be the largest shareholder in the company with a total stake of 28.42 per cent.

The shares of UltraTech Cement rallied 6 per cent to touch a fresh high of Rs 11,811 in intraday trade on Thursday, before settling at Rs 11,715 apiece. The India Cements shares closed at Rs 293, up 11.49 per cent.

The transaction triggered rumours of a hostile takeover of ICL by UltraTech. A hostile takeover happens when an external player takes control of the target company against the wishes of the latter’s management.

The acquisition of the 23 per cent stake will not trigger an open offer, but will ensure that a rival player is not able to make a bid for ICL. The move is considered strategic by many as UltraTech is facing increasing competition from the Adani group, particularly in the South India market. 

Analysts, however, remained sceptical of UltraTech’s rationale for a non-controlling stake, and rumours were rife about further acquisition announcements. “At $90 per tonne, the deal appears to be a moderate one. However, it is not clear what value a 23 per cent stake will add to UltraTech’s current operations,” said Jyoti Gupta, an analyst with Nirmal Bang. “UltraTech is expected to commission its own capacities in the south market shortly. UltraTech will need to infuse cash for optimisation of assets and some of these assets have low limestone deposits,” Gupta added.

According to a person close to the development, UltraTech does not plan to seek a board seat in ICL, despite a 23 per cent ownership.

An email sent to UltraTech on plans for further increase in its stake in ICL and other related queries remained unanswered as of the time of going to press. 

Tushar Chaudhari, an analyst with Prabhudas Lilladher, noted: “India Cements has 14.5 mtpa cement capacity along with 11.13 mtpa clinker capacity. This complements well with UltraTech’s southern capacities if it is able to crack a deal with ICL promoters in future.”

As of March, UltraTech operated 20.5 mtpa capacity in South India, according to the company’s investor presentation. This excludes the 10.75 mtpa that the company will add on completion of its Kesoram Industries deal.

Industry analysts point out that with Kesoram’s capacity, UltraTech will already be the largest player in South India. Further, part of its own expansion plans, UltraTech was to take its south capacity to 35.5 mtpa by the end of 2026-27, more than 19 per cent of its estimated capacity of 183.5 mtpa in India by then.

If UltraTech acquires full control of India Cements, the company’s current south capacity will rise to 35 mtpa with the immediate effect, solidifying its South India market presence. As of March, Ambuja’s consolidated capacity in the south market was 9.7 mtpa. Its two recent acquisitions – Penna Cement with an operational capacity of 10 mtpa and My Home Industries with 1.5 mtapa grinding capacity – will further augment it. Ambuja Cements’ total consolidated capacity stands at 77 mtpa.