Ultratech Cement Buys 23% Stake Of India Cements From Radhakishan Damani

UltraTech Cement Ltd. will buy 23% stake, or 7.06 crore shares, in India Cements Ltd. from Radhakishan Damani and his associated entities, sources aware of the matter told NDTV Profit.

In an exchange filing earlier today, UltraTech said it will acquire 23% stake in India Cements in a non-controlling financial investment. This implies that Ultratech Cement will not have a representative on the India Cements' board. As a corollary to this, an open offer for a 26% stake is unlikely to be made by UltraTech Cement.

The Aditya Birla Group company acquired over 6 crore shares aggregating to 19.44% and will initiate purchase for up to 3.4% equity shares at Rs 285 per share, the company said.

The leading cement maker will buy shares in India Cements at Rs 267 apiece in block deals, resulting in an enterprise value of Rs 10,800 crore. The enterprise value at this price is Rs 7,500 or $90 per tonne.

Ambuja Cements Ltd. had recently bought Penna Cement at a higher enterprise value of $89.15 per tonne, acquiring full control of the Pune-based cement maker. Contrastingly, UltraTech will not acquire control in India Cements after its financial investment.

Earlier today, India Cements Ltd. saw 6.02 crore shares change hands in a pre-market large trade on BSE. This amounts to 19.4% of the entire shareholding of the company. As of now, the buyers and sellers involved in the large trade are not known.

As per the shareholding pattern of India Cements for the quarter-ended March, Radhakishan Shivkishan Damani and Gopikishan Shivkishan Damani have collectively held 20.78% stake in the company.

UltraTech's stake purchase is a good deal, according to Rakesh Arora, founder of Go India stocks. "Lot of consolidation happening in South India. We saw Ambuja takeover Penna, and India cements has been on block for pretty long time. Due to overcapacity in southern cement companies, consolidation was likely to happen."

The cement sector is set for consolidation through mergers and acquisition on the back of mid- to long-term demand visibility, said Ronald Siyoni, research analyst-infrastructure and cement at Sharekhan. Companies may opt for inorganic expansion, instead of taking take to set up new facilities, he said.

These are vintage plants, where efficiency is on the lower side and there are working capital related issues, said Nirav Asher, head of equity research at Latin Manharlal Securities Pvt. These can be value picks if proper due diligence is done, although a lot of de-bottlenecking will have to be done.

Shares of UltraTech Cement and India Cements closed 5.07% and 11.49% higher, respectively, as compared with a 0.72% advance in the benchmark BSE Sensex.