Ultratech acquires majority stake in India Cements: What are the implications, all you need to know

363.75Ultratech Cement, owned by Aditya Birla Group, acquired a majority stake in India Cement on Sunday (July 28). The deal made headlines and piqued the interest of business analysts as well as consumers. This acquisition marks UltraTech’s expansion in the South market. The deal came right after UltraTech acquired a 23% “non-controlling financial stake” of India Cement.

“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 had said earlier in a statement.

Deal value

The deal is worth around 3,954 crore, with UltraTech Cement buying a 32.72% stake in India Cements at Rs 390 per share from the promoters and their associates. This will require a mandatory open offer at Rs 390 per share. The open offer will take place after getting all the necessary regulatory approvals.

Earlier, a report by ET stated that UltraTech might spend about Rs 7,000 crore in total to buy the stake of India Cement chairman N. Srinivasan and to finance the open offer.

Effect on Ultratech’s market and capacity

India Cements facilities can produce a total of 14.45 million tons per year (mtpa) of grey cement, with 12.95 mtpa located in the South (mainly in Tamil Nadu) and 1.5 mtpa in Rajasthan. Meanwhile, UltraTech has 154.86 million tonnes per annum (MTPA) of grey cement.

According to a report in Livemint, buying India Cements will increase UltraTech Cement’s capacity by 9 percent and raise its share of the overall market in India by 2 percent. After the acquisition, UltraTech's total capacity is expected to grow to 214 million tons by FY27.

This acquisition also puts the firm unquestionably ahead in the race for market domination in the Indian cement sector. While Ultratech has been a market leader for the past several years, the Adani Group’s acquisition of ACC, Abuja Cement, and Penna Cement, had shrunk substantially.

In the South, UltraTech’s share of cement capacity is expected to nearly double from about 13 percent to over 25 percent by FY25, according to a report by Emkay Global which was published right after the deal announcement.

According to the Business Standard report, Aditya Birla Group Chairman Kumar Mangalam Birla said that the India Cements acquisition is “exciting” because UltraTech will be able to “serve the Southern markets more effectively.” He added that the deal accelerates their path to “200+ million tonnes per annum capacity.”

Meanwhile, during the company’s 23rd Annual General Meeting (AGM) in August last year, Birla said that UltraTech was looking forward to achieving 200 million tonnes per annum production capacity and becoming a global cement giant. The acquisition of India Cement seems to be a step towards fulfilling this aim.

Impact on revenue

In FY24, UltraTech’s revenue was 70,908 crore with a growth rate of 12.13%, while India Cements had a revenue of 5,112 crore with a decline of 8.84%. The acquisition is expected to boost revenue growth by increasing production capacity and expanding market reach.

Talking about India Cements, investors should watch how the company performs after the acquisition since its previous capacity issues hindered its ability to control costs and set prices. With UltraTech's involvement, these issues should improve.

As of August 1, 2024, UltraTech's share was trading at Rs 11,864.00, down by 0.20% in early trade today, while India Cements share was down to Rs 363.75, down by 0.14%.