Acquisition of India Cements to save a 'failing firm': UltraTech Cement tells CCI

UltraTech, India's largest cement maker, has argued that its proposed takeover of India Cements is not anti-competitive

India’s largest grey cement manufacturer UltraTech Cement has sought the antitrust regulator, Competition Commission of India’s (CCI), approval for acquisition of  India Cements on the grounds that the company was incurring huge losses and the buyout would potentially save a ‘failing firm’.

On July 28, the Aditya Birla-owned Ultratech Cement announced it will be purchasing a 32.72 per cent stake in India Cements for Rs 3,954 crore at a price of Rs 390 per share. The offer was in addition to a 22.7 per cent stake UltraTech Cement had bought in India Cements in June. The overall shareholding of UltraTech Cement in India Cements has gone up to 55.49 per cent after its latest acquisition.

The CCI’s approval is mandatory since both the acquirer and target company operate in the same line of business.

E-mails sent to UltraTech Cement and India Cements remained unanswered till the publication of this article.

“India Cements is incurring substantial losses for both financial years [FY] 2023 and 2024, thereby being at significant risk of a potential failing firm. Accordingly, the proposed transaction will allow an existing grey cement player to remain in the market, thereby retaining operational installed capacity and ensuring uninterrupted grey cement production.” stated UltraTech Cement in a CCI filing dated September 12.

UltraTech Cement also told the CCI that there are certain overlaps in the business activities of the companies. For instance, both the firms are key players in the southern Indian regional market and Rajasthan.

However, Ultratech Cement cited that these markets were highly competitive, fragmented and fast-growing and no competition concerns may arise owing to the acquisition.

Analysts pointed out that India Cements had been going through a slump over the last few years. India Cements’ share price hovered around Rs 250 apiece since December 2022. Data showed that the share price of the ‘failing firm’ reported a 78 per cent rise and closed at Rs 364 on Friday (September 20) following the announcement of the deal in July.

"India Cements witnessed a weak performance in FY24, with 4 per cent  year-on-year decline in sale volumes to 9.5 metric tonnes mnt and a modest  earnings before interest, taxes, depreciation, and amortisation (EBITDA) per metric tonne of Rs 115, attributable largely to its high-cost structure in addition to weak pricing. The weak performance over the past couple of years had led to a weakening of the credit metrics with interest coverage of below 1x in FY24 (FY23: negative)" said India Ratings & Research in a report dated August 2.

The N. Srinivasan-led India Cements has been facing issues pertaining to balance sheet, debt, and efficiency since the last few years, and had been monetising some assets, including land parcels.

For FY24, India Cements reported a consolidated net loss of Rs 216 crore, wider than the Rs 170 crore in net loss reported in the previous fiscal. The consolidated top line for the year-ending March 2024 also showed a decline, to Rs 5,112 crore, from Rs 5,608 crore in FY23.

There are also concerns amongst investors pertaining to succession of the company. Some media reports have suggested that Srinivasan, 79, has been in poor health and his daughter, Rupa Gurunath, is not in favour of running the business.