UltraTech set to double its capacity in South India post India Cements deal

UltraTech set to double its capacity in South India post India Cements deal

Consolidation continues within the cement space, particularly with companies in the southern part of India. On Thursday morning, UltraTech Cements, India's largest cement company with 152.7 MTPA capacity pan-India, approved the acquisition of 23% equity in India Cements for a total consideration of just under ₹1,900 crore.

India Cements has an overall cement capacity of 14.45 MTPA, and is majorly present in the southern part of the country.

At ₹267 per share, which is the price at which UltraTech will acquire the 7.06 crore shares of India Cements, the equity investment of the Aditya Birla Group company is valued at $85 per tonne on an Enterprise Value per tonne basis. This is lower than the industry replacement cost.

Replacement cost refers to the cash outlay that a company has to pay to replace an old asset at the existing market price. The price charged to replace the old asset with a new one with the same value is known as the replacement cost.

As on date, UltraTech has a total capacity of 20.5 MTPA in the Southern part of India, and this is excluding the Kesoram assets.

With the investments the company has made in Kesoram and will make in India Cements, it will more than double its capacity in the region to 45 MTPA.

This would also mean that the market share for UltraTech in the region will increase to 22% from the existing 10%.

What this also implies is that the country's top two cement players - UltraTech and Adani, are expected to control nearly 35% of the total cement capacity in South India.

Additionally, India Cements has large land bank reserves, which also indicates strong growth optionality. Along with cement, India Cements also has shipping and renewable energy assets in South India.

Shares of UltraTech Cement are trading 4.4% higher at ₹11,635. The stock is up 11% so far in 2024.