India’s largest cement manufacturer, UltraTech Cement, has announced a major strategic move that could reshape its position in the Indian cement industry.
On Sunday, UltraTech revealed its plans to acquire a 32.72% equity stake in India Cements from the company’s promoters and their associates for Rs 3,954 crores ($472.38 million), or Rs 390 per share.
This acquisition follows a previous purchase of approximately 23% of India Cements’ equity in June at Rs 268 per share, bringing UltraTech’s total stake in the company to a commanding 56%.
UltraTech’s share price movement
UltraTech Cement closed at Rs 11,873.80 on Monday, marking a 1.72% increase in its price. The company’s stock exhibited positive movement, reflecting investor optimism and market momentum.
Over the past three months, the stock has delivered a return of 19.07% to investors and in the last one year, the share price has surged by 43%
Equity purchase secures southern India footprint
Emkay Global, in a note shared with Invezz, highlighted that the acquisition is a strategic move to enhance UltraTech’s presence in Tamil Nadu, a region known for its limited limestone availability.
“Assuming 70/75% utilization with EBITDA/t of Rs1,000/1,200 in FY26E/FY27E (UltraTech has a good track record of turning around the acquired assets), the implied valuation stands at 13.5x/10.5x EV/E, 30-35% discount to what UltraTech is currently trading at,” the advisory said.
“These assets are likely to generate EBITDA of Rs10-13bn in FY26/FY27E, which would be ~5-6% of our current estimates (currently not factored into our estimates). On acquisition of Kesoram/ICL and based on the on-going expansions, UltraTech India’s grey cement capacity is likely to increase to 209mt (vs 150mt now) by FY27E (~12% CAGR),” it said.
Is the Indian cement industry heading towards consolidation?
The Indian cement industry is undergoing a significant phase of consolidation, driven by strong demand prospects and a growing focus on capacity expansion.
The Aditya Birla Group, UltraTech’s parent company, is in a competitive race with the Adani Group, which has recently surged to become the second-largest cement player in the market through its acquisition of Ambuja and ACC Cement in 2022.
According to a May report by Indian rating agency ICRA, consolidation in the cement sector leads to cost reduction, operational efficiency improvements, and access to ready-made capacity and limestone reserves.
ICRA’s outlook for the sector remains stable, with expectations of a 9-10% increase in revenues and an improvement in operating margins by 80-100 basis points in 2024-25.
Emkay Global forecasts that the top five cement groups’ market share will rise from 40% in FY24 to around 58% by FY27, with significant gains for UltraTech and the Adani Group.
UltraTech’s market share is projected to increase from 11% in FY24 to 25% by FY27, aligning with its growing capacity market share in other regions.
While near-term profitability might be capped due to the ramp-up of acquired assets operating at lower utilization levels, Emkay anticipates that consolidation will enhance price discipline and improve profitability in the long run.
The advisory maintains a BUY recommendation on UltraTech’s stock with a target price of Rs 12,800 per share, based on a 20x EV/EBITDA multiple.
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