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- 29 Jul 2024
- ICICIdirect Research
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ULTRATECH CEMENT ACQUIRES MAJORITY STAKE IN INDIA CEMENTS
ULTRACEMCO - 12562 Change: 117.00 (0.94 %)News: UltraTech cement (ULTCEM) has acquired 32.72% in India Cements (ICL) from its promoters and their associates. The total cost of acquisition is Rs 3954 crore at Rs 390/share of ICL (4.1% premium to Friday’s closing price). With this, ULTCEM’s stake in ICL will increase to 55.5% (as it acquired 22.77% last month at Rs 268/share). The acquisition will also trigger an open offer (which will be conducted subsequently after obtaining all approvals) of upto 26% of ICL at Rs 390/share from its public shareholders, which will raise the total cost for UltraTech to ~Rs 7100 crore. India Cements has a total capacity of 14.45 mtpa, of which 12.95 mtpa is in south region (particularly Tamil Nadu) and 1.5 mtpa in Rajasthan
View: The acquisition cost stands at ~USD 121/ton (~33% higher than the valuation given for 22.77% stake in June) is in-line with the cost of setting up an integrated greenfield cement plant (~USD 120/ton). Though the valuation looks higher considering the recent acquisitions in Industry at $85-100/ton, we believe that this would still be positive for the company in longer term as it gets access to ready-made capacities & limestone reserves. We believe that, with improvement in operational efficiencies, ULTCEM would be able to improve the plants’ profitability and increase its exposure in the south region markets substantially. Moreover, with balance sheet remains strong (net debt/EBITDA at 0.4x as of June 2024), ULTCEM remains focused on maintaining its leadership position and increasing its market shares across regions by expanding capacities through organic & in-organic routes. ULTCEM has a target of reaching capacity of 200 mtpa by FY27E (from 155 mtpa at present excluding Kesoram and India Cement). We believe the acquisition at $121/ton would also augment valuations of small/mid-sized southern players like Sagar Cement & Orient Cement.
Impact: Positive