UltraTech to acquire 23% stake in India Cements for ₹1,885 cr; stocks hit their 52-week highs

Shares of UltraTech Cement, the country’s largest cement manufacturer, and India Cements rallied up to 14% in intraday trade to touch their respective 52-week highs on Thursday after an acquisition deal. UltraTech, a part of Aditya Birla Group, has proposed to buy a 23% stake in Chennai-based India Cements (ICL) for a total consideration of ₹1,885 crore. The timeline for completion of this deal is one month, while there is no indication of acquisition for controlling stake in ICL.

UltraTech in an exchange filing says that it will purchase up to 7.06 crore equity shares of India Cements at a price of up to ₹267 per share, amounting to ₹1,885 crore. “This non-controlling financial investment constitutes around 23% of the equity share capital of ICL.”

Cheering the news, shares of India Cements surged 13.7% to hit a 52-week high of ₹299 on the BSE, while its market capitalisation rose to ₹8,860 crore. Early today, the cement stock opened higher at ₹280.40, up 6.6% against the previous closing price of ₹262.95. The stock has risen 73% against its 52-week low of ₹172.55 touched on June 4, 2024.

Meanwhile, UltraTech shares gained up to 6.5% to hit its 52-week high of ₹1,1875.95 on the BSE, while its market cap climbed to ₹3.31 lakh crore. The cement heavyweight has rebounded nearly 50% from its 52-week low of ₹7,940.55 hit on August 16, 2023.

In a regulatory filing this morning, UltraTech said that its board of directors today approved making a financial investment to buy up to 23% equity stake in ICL.

Established in 1946 and currently headed by N Srinivasan (managing director and CEO), ICL is one of the leading cement manufacturers in South India with established presence in all five states in the region. It has capacity spread across 10 different manufacturing units (including two split grinding units) in Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra and Rajasthan. It manufactures cement (Ordinary Portland Cement and Portland Pozzolana Cement in 37:67 mix) under the Coromandel, Sankar and Raasi brands.

Tushar Chaudhari, Research Analyst, Prabhudas Lilladher, says that the deal can be mutually beneficial for both companies as UltraTech can work of strategic cement supply agreement to gain market share in undersupplied AP and Telangana belt and ICL’s financial performance can also improve as volume improves.

India Cements has 14.5 million tonnes per annum (MTPA) cement capacity (5 mtpa in Telangana, 6 mtpa in Tamil Nadu, 2.1 mtpa in AP, and 1.5 mtpa in Rajasthan) along with 11.13 mtpa clinker capacity; which complements well with UltraTech’s Southern capacities if it will be able to crack a deal with ICL promoters in future. UltraTech has 2 mtpa in Telangana, 5 mtpa in Tamil Nadu, 10.6 mtpa in AP.

“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,” says analyst at Prabhudas Lilladher.

On pricing, he says that it is also expected to improve once demand recovers substantially from H2 FY25E. “We remain positive on industry leaders as we expect both UltraTech and Ambuja Cement would keep gaining market share with things are going to get difficult for inefficient smaller players.”

Earlier this month, Ambuja Cement, a part of Adani group company, signed a deal to acquire 100% stake in Hyderabad-based Penna Cement, promoted by P Prathap Reddy and family, at an enterprise value of ₹10,422 crore. This was the third major acquisition in the last one year by Adani Cement after My Home Group's grinding unit in Tuticorin (Tamil Nadu) and Gujarat-based Sanghi Industries.

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