Ultratech-India Cements deal: Mutually beneficial for both firms; competition to increase, says Prabhudas Lilladher

UltraTech Cement on June 27 announced that its board had approved the acquisition of a 23 per cent equity stake in India Cements. UltraTech plans to purchase 7.06 crore shares of India Cements at ₹267 apiece, bringing the total deal value to approximately ₹1,885 crore.

The promoter group holds a 28.42 per cent stake in India Cements, while renowned investor Radhakishan Damani and his associates own 20.78 per cent of the company's shares.

UltraTech added that the expected timeframe for completing the acquisition is one month. The company also noted that the acquisition will be an all-cash transaction.

What do analysts say?

According to Tushar Chaudhari, Research Analyst, Prabhudas Lilladher, competition is expected to increase in the market. However, demand is expected to remain muted in the near term.

“We believe consolidation is expected to continue in the cement space with industry leaders having strong balance sheets; competition is also expected to increase with players trying to gain market share. Near-term demand remains muted and expected to improve post-monsoon. Pricing is also expected to improve once demand recovers substantially from 2HFY25E. We remain positive on industry leaders as we expect both UTCEM and ACEM would keep gaining market share with things are going to get difficult for inefficient smaller players,” Chaudhari said.

He further added that the deal can be mutually beneficial for UltraTech and Indian Cements as it can work as a strategic cement supply agreement to gain market share in the undersupplied AP/Telangana belt. ICEM’s financial performance can also improve as volume improves.

India Cements has a total cement production capacity of 14.5 million tonnes per annum (mtpa): 5 mtpa in Telangana, 6 mtpa in Tamil Nadu, 2.1 mtpa in Andhra Pradesh, and 1.5 mtpa in Rajasthan. Additionally, it has a clinker capacity of 11.13 mtpa. This capacity aligns well with UltraTech Cement's operations in the southern region, should UltraTech Cement successfully negotiate a deal with India Cements' promoters in the future. UltraTech Cement currently has a capacity of 2 mtpa in Telangana, 5 mtpa in Tamil Nadu, and 10.6 mtpa in Andhra Pradesh.

The analyst expressed confidence in industry leaders, predicting that UltraTech Cement and Ambuja Cements will continue to gain market share as conditions become increasingly challenging for less efficient smaller players.