UltraTech Cement - Southern Dominance; Consolidation Virtues Appear Distant: ICICI Securities

ICICI Securities Report

UltraTech Cement Ltd. is poised to be the heavyweight in south India’s cement arena. With a quest to consolidate regional presence further, it has agreed to acquire 32.7% stake in India Cements Ltd.

Having acquired 22.8% in June-24, the latest deal shores up its stake to a controlling 55.5% in India Cements and also triggers the mandatory 26% open offer. At Rs 390, the deal values India Cements at $119 enterprise value/tonne; including the previous transaction, the effective deal cost works out to ~$110/tonne.

Along with Kesoram Industries (where the acquisition bid is awaiting regulatory nod), the India Cements deal is set to catapult UltraTech Cement’s capacity share in south India to ~23%, from ~12%.

However, the imminent consolidation is unlikely to have a positive rub-off on cement prices in south India just yet, given it still remains a fragmented market with more than 30 players. Factoring in the difference in EV/t of UltraTech Cement and the deal value, we upgrade the company to Hold; target price revised to Rs 11,046 (from: Reduce; Rs 10,553).

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