In the grinding battle for cement, UltraTech makes a big move in the south

Cement wars kicked into high gear on Sunday with industry leader UltraTech Cement Ltd scooping up India Cements Ltd, denying a potential target for rival Adani group rapidly catching up through a series of acquisitions. The deal comes just a month after UltraTech bought nearly 23% in India Cements, even as Adani has emerged as India's second-largest cement-maker in less than two years.

After a board meeting on Sunday, UltraTech said it will acquire 32.72% stake from India Cements' promoters for ₹3,954 crore, and launch an open offer for 26% more. The twin deals will cost it ₹7,096.35 crore, if the open offer is fully subscribed. On 27 June, UltraTech had purchased 22.77% in India Cements for ₹1,900 crore. With this, its total investment in India Cements will be close to 9,000 crore.

'Exciting opportunity'

"The India Cements opportunity is an exciting one as it enables UltraTech to serve the southern markets more effectively, and also accelerates our path to 200+ million tonnes per annum (mtpa) capacity", said Kumar Mangalam Birla who chairs the Aditya Birla Group, remarking on the acquisition that comes at a time of roaring infrastructure development and booming demand for construction material.

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If India's competition and market regulators approve the share purchases, UltraTech's total shareholding in India Cements will touch 81.49%, valuing it at about ₹11,044 crore. Since promoters cannot hold more than 75% in Indian listed companies, UltraTech will have to either sell some of its shares to bring its ownership below the threshold, or delist India Cements altogether.

After a board meeting on Sunday, Ultratech said the stake sale proposal came from India Cements' promoters N. Srinivasan and his family associates. Ultratech will purchase the entire 32.72% jointly owned by N Srinivasan, his family members and their associate firms as promoters in India Cements, and launch an open offer to acquire up to 26% in India Cements at ₹390 a share, 4% above India Cements' share price close on Friday.

India Cements' FY24 income of ₹5176.98 crore was lower than ₹5648.25 crore in the previous year. Due to cost overruns and higher expenses, net losses widened to ₹227.34 crore during the fiscal from a loss of ₹126.89 crore in FY23. Srinivasan, his wife Chitra Srinivasan and daughter Rupa Gurunath, along with their associate trusts and firms control India Cements. Rupa Gurunath's trustee holds 6.44% while EWS Finance & Investments Pvt Ltd, an entity directly held by Srinivasan owns 21.56%.

The deal highlights the severe competition in India's cement sector. On 22 April, Mint reported that Gautam Adani’s Ambuja Cements Ltd plans to raise the capacity of Ambuja Cements to at least 180 mtpa over next three years and make a series of acquisitions, as part of a $9-billion quest to beat UltraTech as the country’s largest cement-maker.

Two months later, on 13 June, Ambuja Cements announced the ₹10,422 crore acquisition of Hyderabad-based Penna Cement Industries Ltd, which operates 14 mtpa capacity with 4 mtpa under construction. This was Adani Group's third acquisition since it entered cement business in September 2022. The acquisition enhanced Adani Cements' total capacity to about 90 mtpa, and once the 4 mtpa capacity at Jodhpur and Krishnapatnam are completed in the next 12 months, Adani's capacity will be about 94 mtpa.

Acquisition spree

Just days after Adani's Penna acquisition, Birla's UltraTech picked up a substantial minority stake in India Cements for ₹268 per share at about ₹1,900 crore.

While UltraTech will pay ₹764.29 crore per mtpa of India Cements, Adani Group will pay ₹744 crore per mtpa to acquire Penna Cement.

The India Cements acquisition will add a capacity of 14.45 mtpa (12.95 mtpa in the South and 1.5 mtpa in Rajasthan) of grey cement to UltraTech, the country's largest cement maker with 154.86 mtpa capacity.

"UltraTech Cement's investments over the years, both organic and inorganic, have been designed to propel India to become a building solutions champion globally," said Birla.

The limited availability of limestone in Tamil Nadu has resulted in restrictions on setting up of new integrated units in the state, UltraTech said, explaining the rationale behind Ultratech to expand in the state via acquisition of India Cements. India Cements operates eight plants and two grinding units.

"The company’s last integrated unit in Tamil Nadu was acquired by Grasim Industries Ltd (Ultratech's parent) in August 1998. The proposed transaction is, therefore, an endeavour to extend the company’s footprint and presence in the highly fragmented, competitive and fast-growing Southern market in the country, particularly Tamil Nadu, where it has limited presence," said UltraTech.

According to Ultratech, the operational efficiencies from access to ready-to-use assets (under India Cements) will reduce time to market vis-a-vis greenfield projects and will also provide the Aditya Birla group company with the opportunity to evaluate the "optimization/ deferment of the company’s existing capacity expansion plans in the Southern market, given the ready to use assets of the target (India Cements)".

Modernization drive

Last week's Union Budget emphasized on modernization while announcing an outlay of ₹ 11.11 trillion for infrastructure.

Birla, while announcing the India Cements acquisition, said, "Every investment in a core sector like cement accelerates economic activity and drives progress. These investments have also facilitated India's nationwide infrastructure upgrade, powering our country's growing need for housing, roads, and other vital infrastructure. This, in turn, has had tremendous impact on the lives and aspirations of people."

Going forward, the Adani group, according to recent media reports, is keen to acquire the 9.4 mtpa cement business of Jaypee Group as well, through the corporate insolvency and resolution process.

Ultratech said both the primary acquisition for the stake purchase from the Srinivasans and the open offer in India Cements are likely to be concluded within six months.