UltraTech, India Cements deal may benefit both cement makers, says PL; here's how

Ultratech Cement would acquired 23 per cent stake in India Cements from open market, with the transaction working out at $90 per tonne. The fresh development can be mutually beneficial for both cement makers in the long run and can further lead to consolidation in the cement sector, said Tushar Chaudhari, Research Analyst at Prabhudas Lilladher.

India Cements has 14.5 mtpa cement capacity: 5 mtpa in Telangana, 6 mtpa in Tamil Nadu, 2.1mtpa in AP and 1.5 mtpa in Rajasthan. Along with this, it has 11.13 mtpa clinker capacity, which complements well with UltraTech's Southern capacities if UltraTech Cement is able to crack a deal with India Cements' promoters in future. UltraTech Cement has 2 mtpa capacity in Telangana, 5mtpa in Tamil Nadu and 10.6 mtpa in Andhra Pradesh.

"This deal can be mutually beneficial for UltraTech Cement and India Cements, as UltraTech Cement can work of strategic cement supply agreement to gain market share in undersupplied AP/Telangana belt and India Cements financial performance can also improve as volume improves," Chaudhari said.

UltraTech's total investment will stand at Rs 1,890 crore  as it will acquire 7.06 crore shares of India Cements. Indicative time for completion of this non-controlling financial investment is one month. However there is no indication of acquisition for controlling stake in India Cements, Chaudhari said.

"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 2HFY25," Chaudhari said.

The PL analyst said he remain positive on industry leaders as he expects both UltraTech Cement and Ambuja Cements to keep gaining market share with things getting difficult for inefficient smaller players.