Ultratech–India Cement deal unlikely to face anti-trust challenges

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

Ultratech Cement’s proposal to acquire an additional 32.72 percent stake and management control in India Cements is unlikely to face any challenges in obtaining anti-trust clearance, said legal experts. Any big acquisition, especially ones where both acquirer and seller belong to the same industry, need approval from the Competition Commission of India(CCI).

On July 28, Ultratech announced it will buy a 32.72 percent stake In India Cements at Rs 3,954 crore for Rs 390 per share. In June 2024, Ultratech had bought a 22.77 percent stake India Cements for Rs 268 per share. After the latest deal, the overall shareholding of Ultratech in India Comments will go up to 55.49 percent.

As per the rules, the commission examines every acquisition from the prism of whether it could lead to creation of a dominant market position. The dominant market position is calculated not at overall industry level but at a more granular level. In this case, the total market share of India Cements is not added to the market share of Ultratech. Instead, the whole industry is split into markets region wise and the impact to the competition market is examined independently for each region.

Market participants said Ultratech and India cements are not direct and dominant competitors in any market. While Ultratech is a dominant player in northern and western India, India Cements is largely dominant in parts of southern India. Hence, the arrangement would not lead to any significant impact from the competition law point of view.

According to the annual report of Ultratech Cement for FY24, the company’s capacity installed in south India is the least compared to other regions. Only 14 percent of the company’s capacity in installed in south India, compared to 24 percent in the north, 22 percent in the west, and 20 percent each in the east and central India, data showed. In contrast, India Cements has little presence outside the south Indian market.

Another key factor is the fragmented nature of the cement industry in the southern region where India Cements draws its strength from. Unlike other regions, the south is a fragmented market with many sub-regional players. In 2023, Ultratech acquired another cement maker based in the south, Kesoram Industries. Experts say the situation was similar even in that case, as Kesoram was a regional player in the south while Ultratech was not a dominant player there. Legal experts however add there will be horizontal and vertical overlaps in certain regions between Ultratech and India Cement. This may not have adverse impact on competition market.

Horizontal overlaps are caused when a company buys another company which is producing the same products while vertical overlaps are any overlaps in the downstream supply chains being used by both the companies.