By acquiring a 23% stake in India Cements, UltraTech, the country’s largest player with a capacity of 140 million tonnes per annum (mtpa), has made a significant move in the sector’s consolidation game. This comes soon after the Adani Group-owned Ambuja Cements recently picked up Hyderabad-based Penna Cement for $1.25 billion and brought in a total of 14 mtpa of capacity across Andhra Pradesh, Telangana, Maharashtra and Rajasthan.
The cement sector has seen some frenetic activity ever since the Adani group acquired Ambuja Cements and ACC in May 2022 for a whopping $10.5 billion. In one stroke, it gave it a capacity of over 65 mtpa and that was followed up by other buyouts, among which were Sanghi Industries, a grinding unit of MyHome in Tamil Nadu before the Penna deal.
According to G Chokkalingam, Founder, Equinomics Research, having two large players means there will be little problem relating to a monopoly. “It is clear opportunity for more acquisitions to go through. Adani is a strong No 2 player today,” he says. The group has outlined its ambition of achieving a production capacity of 140 mtpa by 2028, while UltraTech wants to breach the 200 mtpa mark.
Specifically, on India Cements, with a capacity of around 15 mtpa largely housed in the south, he is of the view that UltraTech will not remain a financial investor. “They will increase their holding in the company and strengthen their presence in south India,” explains Chokkalingam. The promoter group, led by N Srinivasan, holds 28.42% in India Cements, while DMart Founder, Radhakishan Damani has close to 23%. Analysts tracking the sector say India Cements has several challenges like lower operating margins and UltraTech, if it gets to a position of controlling the company, will need to invest time and money. Assuming, it acquires another 2% to get to 25%, UltraTech will need to make an open offer for another 26%. “They have had a history of turning around assets they acquired and that will help in the case of India Cements,” says one of them.
The market in the south has been characterised by overcapacity that, over time, has led to lower utilization levels. Plus, it is highly fragmented in a scenario of several players with sub-optimal capacity. Chokkalingam says, that on an EV/EBITDA basis, India Cements is fairly valued today and strategically fits in well with UltraTech’s overall cement portfolio.