Dear Reader,
Aditya Birla-owned UltraTech Cement Ltd’s acquisition of a 23 per cent equity stake in the loss-making southern cement giant India Cements Ltd has overwhelmed investors. Even though UltraTech’s media release stated that this acquisition made at an average price per share of Rs 267 is purely a financial transaction, shares of India Cements jumped by 10 per cent.
Investors are quick to draw inferences. The financial move could turn into a strategic one at a later date. After all, this coup has come close on the heels of competitor and the second largest cement manufacturer Adani group’s acquisition of south-based Penna Cement.
To be sure, the race to comb limestone reserves required infrastructure such as railway and port connectivity, and a pan-India capacity is hotting up between the Aditya Birla and Adani groups. The former had, in UltraTech’s annual general meeting last year, announced its intent to take its capacity up to 200 million tonnes per annum (mtpa) over the next three to four years. Adani, meanwhile, has expressed its intent of having a capacity of 150 mtpa by around the same time.
Another perspective doing the rounds on the Street is that the deal could be the beginning of a hostile takeover. Market speculation (unconfirmed) states that large quantities of shares exchanged in the last few days indicate the possibility of a large shareholder offloading shares. “The public shareholding of India Cements is dominated by three main investors with DMart founder Radhakishan Damani holding the biggest chunk of 20.78 percent stake, followed by ELM Park Fund Ltd holding a 5.58 percent stake and LIC, which holds a 3.6 percent stake,” states this Moneycontrol article.
With this 23 per cent, UltraTech’s stake is close to that of promoter N Srinivasan, who holds a 29 per cent stake. The narrow gap between shareholdings of these two entities will see a larger story unfold soon. For UltraTech, the acquisition pre-empts Adani from targeting this big firm and further entrenching itself in the south.
Be that as it may, what’s certain is that consolidation in the cement sector is gaining momentum. A change in the industry landscape has seen the cement sector morph from being a regional play to one of scale and operational efficiencies at a consolidated level. According to a report by Jefferies, the lack of next generation in mid-sized companies, cornering of profits by large companies through pricing discipline, leveraged balance sheets and limestone constraints are prompting small promoters to sell out.
The big boys are, therefore, out there to capture market share. While some such as Shree Cement have taken the organic route to expansions, UltraTech and Adani have blended both although acquisitions have seen traction in recent years. The Adani group, according to analysts’ reports, had four mergers and acquisitions in the last nine months.
A Jefferies report states that the all-India share of the top five cement companies has risen from 46 per cent of the total capacity in FY2015 to 54 per cent in FY2024. The share of the top two is likely to increase at a much faster pace.
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