UltraTech Cement share price gained over a percent in early trade on Monday after the company announced the acquisition of another 32.72% stake in India Cements. Meanwhile, India Cements share price also rallied nearly 3% on BSE.
The Aditya Birla Group-owned UltraTech Cement said its board of directors approved the acquisition of a 32.72% equity stake of the promoters and their associates in India Cements for ₹3,954 crore at ₹390 per share. The price is 4.1% higher than India Cements share’s closing price of ₹374.60 apiece last Friday.
In June 2024, UltraTech had made a financial investment in south India-based cement manufacturer India Cements to acquire 22.77% equity at a price of ₹268 per share. With the latest announcement, UltraTech Cement will become the majority shareholder in India Cements with a holding of 55.49% stake.
The stake sale will also trigger a mandatory open offer. Both the stake sale and open offer will be subject to regulatory approvals, UltraTech Cement said in a stock exchange filing.
Analysts believe the acquisition will significantly strengthen UltraTech’s position, and expect the company’s capacity market share to more than double in the Southern region.
Here’s how the UltraTech Cement - India Cements deal will impact the Aditya Birla Group company.
Assuming 70% - 75% utilization with EBITDA per tonne of ₹1,000 - ₹1,200 in FY26E and FY27E, the implied valuation stands at 13.5x/10.5x EV/E, 30-35% discount to what UltraTech is currently trading at, according to Dharmesh Shah, Research Analyst at Emkay Global Financial Services.
These assets are likely to generate EBITDA of ₹1,000 - 1,300 crore in FY26/FY27E, which would be around 5-6% of our current estimates (currently not factored into our estimates), he said.
India Cements has a total capacity of 14.45 mtpa of grey cement. Of this, 12.95 mtpa is in the South (particularly Tamil Nadu) and 1.5 mtpa is in Rajasthan.
The acquisition of India Cements will add 9% to UltraTech Cement’s current capacity and augments its capacity share by 2% on a pan-India basis. Post the acquisition, UltraTech’s cement capacity would increase to 214 MT, including Kesoram, by FY27E from the current 156 MT ex-Kesoram.
UltraTech Cement’s capacity share in the South is expected to almost double from the current ~13% to more than 25% by FY25 as its capacities there are expected to increase to over 50 MT from the current 25 MT.
The increased consolidation in the cement industry is expected to benefit the top two groups in terms of market share. According to Antique Stock Broking, the top 2 groups - UltraTech Cement and Adani Group are expected to account for half of the cement industry volume by FY27-28.
UltraTech Cement is estimated to account for ~1/3rd of the industry volume by FY27E aided by a few M&As. Emkay Global estimates that UltraTech capacity market share would increase from 11% in FY24 to 25% by FY27E, in line with its capacity market share of >20% in other regions.
Analysts believe industry consolidation will be positive for price discipline and price improvement, and can generate significantly better profitability and return ratios in the longer term.
However, in the near term, industry profitability could remain capped as companies may look to improve utilization given acquired assets are operating at low utilization levels. Analysts expect this scenario (ramp up of assets, consolidation) to continue for another 4-6 quarters at least.
Emkay Global maintained a ‘Buy’ rating on UltraTech Cement shares with June 2025 target price of ₹12,800 per share.
Antique Stock Broking also maintained a ‘Buy’ call with an unchanged UltraTech Cement share price target of ₹12,400 apiece. UltraTech Cement remains the brokerage firm’s top pick.
At 9:25 AM, UltraTech Cement shares were trading 1.21% higher at ₹11,820.65, while India Cements shares were trading 0.56% higher at ₹376.70 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
