UltraTech Cement Acquires 32.72% Stake In India Cements; Stocks In Focus; Check Deal Details Here

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 made headlines as its board of directors approved the acquisition of a 32.72% equity stake of the promoters and their associates in India Cements for Rs 3,954 crore at Rs 390 per share. This price is 4.1% higher than India Cements' closing price of Rs 374.60 apiece last Friday.

In June 2024, UltraTech had made an initial financial investment in the South India-based cement manufacturer, acquiring 22.77% equity at a price of Rs 268 per share. With the latest acquisition, UltraTech Cement will become the majority shareholder in India Cements, holding a 55.49% stake.

This stake acquisition will also trigger a mandatory open offer, subject to regulatory approvals. UltraTech Cement's stock exchange filing indicated that both the stake sale and open offer are on track to proceed.

Assuming 70% to 75% utilisation with EBITDA per tonne of Rs 1,000 to Rs 1,200 in FY26E and FY27E, the implied valuation stands at 13.5x/10.5x EV/E, a 30% to 35% discount compared to what UltraTech is currently trading at.

India Cements has a total capacity of 14.45 million tonnes per annum (mtpa) of grey cement, with 12.95 mtpa in the South (particularly Tamil Nadu) and 1.5 mtpa in Rajasthan. The acquisition of India Cements will augment UltraTech Cement's current capacity by 9%, increasing its capacity share by 2% on a pan-India basis. Post-acquisition, UltraTech's cement capacity is projected to rise to 214 MT by FY27E from the current 156 MT ex-Kesoram.

UltraTech Cement's capacity share in the South is expected to nearly double from the current ~13% to over 25% by FY25, with its capacities in the region anticipated 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 two groups - UltraTech Cement and Adani Group - are projected 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, driven by mergers and acquisitions. Emkay Global forecasts that UltraTech's capacity market share will rise from 11% in FY24 to 25% by FY27E, aligning with its market share of over 20% in other regions.

Analysts believe industry consolidation will positively impact price discipline and improvement, potentially leading to significantly better profitability and return ratios in the longer term. However, in the near term, industry profitability might remain constrained as companies focus on improving utilization, given that acquired assets are operating at low utilization levels. Analysts expect this trend of ramping up assets and consolidation to continue for another 4-6 quarters at least.

Following the announcement, shares of UltraTech Cement showed minor gains, trading at Rs 11,736.60 per share as of 10:40 am on the National Stock Exchange (NSE). The stock has delivered returns of over 40% in the last year.

Similarly, shares of India Cements traded with gains of nearly 1%, priced at Rs 377.65 per share as of 10:40 am on the NSE. India Cements has shown remarkable performance, delivering returns of nearly 75% in the last year.