UltraTech Cement Soars on India Cements Buyout; What It Means for the Industry and Investors

UltraTech Cement’s shares rose by over 1% on Monday after the company announced it is buying a 32.72% stake in India Cements. India Cements shares also jumped nearly 3%.

The Aditya Birla Group’s UltraTech Cement will pay ₹3,954 crore for the stake at ₹390 per share, which is 4.1% higher than India Cements’ closing price last Friday. Earlier in June 2024, UltraTech bought a 22.77% stake in India Cements at ₹268 per share. This new purchase makes UltraTech the majority shareholder with a 55.49% stake.

This deal will also trigger a mandatory open offer, pending regulatory approvals.

Key Takeaways from the UltraTech-India Cements Deal

Deal Value

With an expected utilization of 70%-75% and EBITDA per tonne of ₹1,000-₹1,200 in FY26 and FY27, the deal is valued at 13.5x/10.5x EV/E, which is a 30-35% discount compared to UltraTech’s current trading value. The assets could generate ₹1,000-1,300 crore EBITDA in FY26/FY27, adding about 5-6% to current estimates.

Capacity Boost

India Cements has a total capacity of 14.45 mtpa of grey cement, mostly in Tamil Nadu and a small portion in Rajasthan. This acquisition boosts UltraTech’s capacity by 9%, increasing its total to 214 MT by FY27, up from 156 MT. In the South, UltraTech’s share will nearly double from 13% to over 25% by FY25.

Industry Impact

The deal increases consolidation in the cement industry, with UltraTech and the Adani Group expected to control half of the industry volume by FY27-28. UltraTech’s market share is projected to grow from 11% in FY24 to 25% by FY27. This consolidation is likely to improve price discipline and profitability in the long run, though near-term profits may be limited as companies work to improve utilization.

Stock Price Outlook

Emkay Global has a ‘Buy’ rating for UltraTech Cement with a target price of ₹12,800 per share by June 2025. Antique Stock Broking also recommends a ‘Buy’ with a target of ₹12,400 per share. UltraTech Cement remains a top pick for both firms.

At 9:25 AM, UltraTech Cement shares were up 1.21% at ₹11,820.65, and India Cements shares were up 0.56% at ₹376.70 on the BSE.