It's battleground South India as UltraTech announces acquisition of India Cements

UltraTech's proposed acquisition promises to heat up the market share game in southern India, with Adani Cement and others close on its heels.

Through its acquisition of India Cements, India's largest cement maker, UltraTech Cement Ltd, is looking to expand in Southern India which has been a difficult market to penetrate for large cement makers due to the presence of established regional listed and unlisted players with entrenched dealership networks and brand recognition.

UltraTech announced on Sunday that its board has approved plans to acquire a majority stake in India Cements Ltd from promoter N. Srinivasan and his family, a month after the Aditya Birla group-owned entity acquired a near-23 percent stake in the latter. The move, subject to regulatory clearances, including from the Competition Commission of India, may prove to be a landmark in the fight for market leadership in Southern India, with UltraTech's main rival, Adani Cement, threatening to gain an advantage in the region through acquisitions and expansions.

India Cements' 14.45 MTPA cement capacity is largely located in southern states, particularly in Tamil Nadu. As of June, UltraTech had an operational capacity of 149.5 MTPA in India and 154.9 MTPA overall.  In a recent investor presentation, Ultratech said that it has plans to reach a capacity of 183.5 MTPA by FY27.

A little over a week ago, during UltraTech Cement's April-June earnings call, the company's chief financial officer, Atul Daga, told investors that the initial 23 percent stake it bought in India Cements was just a "smart financial investment."  UltraTech said on July 28 that the majority stake acquisition in India will help augment the company's only other integrated unit in Tamil Nadu, located in Reddipalayam, which has a capacity of 1.4 MTPA but faces a scarcity of limestone, potentially limiting its lifecycle. UltraTech, with a capacity in the south of around 25 MTPA, operates several integrated cement plants and grinding units across Tamil Nadu, Andhra Pradesh, Karnataka, and Telangana. UltraTech commissioned 4.5 MTPA of cement capacity in southern India during the April-June quarter, in Tamil Nadu and Andhra Pradesh.

In June, Adani Cement acquired the unlisted cement maker Penna Cement for more than Rs 10,000 crore and is reportedly looking for more acquisitions in the sector. UltraTech too has eyed other acquisitions, with the company in the process of merging Kesoram Industries' cement operations with itself, which will add 10.75 MTPA in capacity, particularly in Southern India. Reports have said that UltraTech has been in talks with Orient Cement, another regional player in southern India, and owned by UltraTech chairman Kumar Mangalam Birla's uncle CK Birla.

Entities such as Dalmia Bharat and Shree Cement, both of which have a significant presence in southern markets, have also outlined plans to expand and maintain their presence in the region. They are also betting on other markets, particularly the east and the north, in anticipation of the impending fight for market share in the south. The yet-unlisted JSW Cement operates a grinding unit in Karnataka and has ready-mix concrete units elsewhere in the southern states.

Despite concerns about relatively sluggish cement pricing in southern markets, the promise of large-scale infrastructure development projects in the region, such as Andhra Pradesh's capital Amaravati, as well as real estate development in a region better-off economically than others, have attracted large cement players to the region.

According to an exchange filing by UltraTech, the company is buying a 32.72 percent stake in India Cements from their promoters, including N. Srinivasan and other entities representing the promoter group, for Rs 3,954 crore, at Rs 390 per share. UltraTech is also planning an open offer to other shareholders to acquire a further 26 percent stake in the company.

India Cements, led by 79-year-old Srinivasan, has been looking to pare down some of its relatively high debt and has been looking to monetize some of its assets. Earlier this year, the company sold a cement grinding unit in Parli, Maharashtra, to UltraTech for Rs 315 crore. Media reports have indicated that the next generation of the Srinivasan family, including his daughter Rupa Gurunath, does not wish to run the company after Srinivasan steps down from the board, which is imminent due to his age and health.

For FY24, India Cements reported a consolidated revenue of Rs 5,112.24 crore, lower than the Rs 5,608 crore the previous year, and a net loss of Rs 227.34 crore for the year ended March 31, 2024, higher than the loss of Rs 126.89 crore the previous year. India Cements has also been struggling with inefficiencies in managing expenses such as power, fuel, and other elements, and had proposed a Rs 700 crore spend over two years on capital expenditure, largely dedicated to improving efficiency.