UltraTech Cement shares: The share price of UltraTech Cement rose by more than one percent during early trading on Monday following the company’s announcement of acquiring an additional 32.72% stake in India Cements. At the same time, the share price of India Cements increased by almost 3% on BSE.
UltraTech Cement, owned by the Aditya Birla Group, announced that its board has given the go-ahead for purchasing the promoters’ and their associates’ 32.72% shares in India Cements for ₹3,954 crore at ₹390 per share. The cost exceeds the closing price of India Cements shares by 4.1% from last Friday, which was ₹374.60 per share.
UltraTech made a financial investment in India Cements, a cement manufacturer in south India, in June 2024, purchasing 22.77% equity at ₹268 per share. UltraTech Cement’s recent announcement means they will hold a majority stake of 55.49% in India Cements.
The mandatory open offer will be activated by the stake sale as well. UltraTech Cement stated in a filing to the stock exchange that both the stake sale and open offer will require regulatory approvals.
Experts predict that the purchase will greatly enhance UltraTech’s position, projecting a more than twofold increase in the company’s market share in the Southern region.
The impact of the UltraTech Cement – India Cements deal on the Aditya Birla Group company will be explained.
Valuation of a deal
Dharmesh Shah, Research Analyst at Emkay Global Financial Services, anticipates a valuation of 13.5x/10.5x EV/E, representing a 30-35% discount to UltraTech’s current trading levels, based on 70% – 75% utilization and EBITDA per tonne of ₹1,000 – ₹1,200 in FY26E and FY27E.
He mentioned that these assets are expected to produce EBITDA of ₹1,000 – 1,300 crore in FY26/FY27E, representing approximately 5-6% of our existing forecasts (currently not included in our forecasts).
Volume
India Cements can produce up to 14.45 million tonnes per annum of grey cement. Out of this total, 12.95 mtpa is located in the Southern region (specifically in Tamil Nadu) and 1.5 mtpa is situated in Rajasthan.
The purchase of India Cements will increase UltraTech Cement’s existing capacity by 9% and boost its overall capacity share by 2% across India. After the purchase, UltraTech’s cement capacity is expected to reach 214 MT, including Kesoram, by FY27E, up from the current 156 MT excluding Kesoram.
UltraTech Cement is projected to nearly double its capacity share in the South, reaching over 25% by FY25 as its capacities are set to grow to more than 50 MT from the current 25 MT.
Impact on the industry
The top two groups are anticipated to gain advantages from the growing consolidation in the cement sector. Antique Stock Broking predicts that UltraTech Cement and Adani Group will together represent half of the cement industry volume by FY27-28.
UltraTech Cement is projected to represent approximately one-third of the industry volume by FY27E with the help of some mergers and acquisitions. Emkay Global predicts UltraTech’s market share of capacity to grow from 11% in FY24 to 25% by FY27E, consistent with its capacity market share exceeding 20% in other areas.
Analysts think that industry consolidation will have a beneficial impact on price discipline and improvement, leading to higher profitability and return ratios in the future.
Nevertheless, in the short term, the profitability of the industry may be limited as companies aim to increase utilization due to low levels of operation of acquired assets. Experts anticipate that the increase in assets and consolidation will persist for a minimum of 4-6 more quarters.
Forecast for UltraTech Cement’s stock price
Emkay Global reiterates their ‘Buy’ recommendation for UltraTech Cement stocks, setting a target price of ₹12,800 per share by June 2025.
Antique Stock Broking reiterated a ‘Buy’ recommendation and kept the UltraTech Cement target price at ₹12,400 per share unchanged. The brokerage firm’s top choice is still UltraTech Cement.
UltraTech Cement shares were up by 1.21% at ₹11,820.65 at 9:25 AM, whereas India Cements’ shares were trading 0.56% higher at ₹376.70 each on the BSE.
What is the top quality grade of UltraTech cement?
53-grade cement is the top-quality cement that can be found in India. After 28 days of curing, it boasts a compressive strength of 53 N/mm².
Also Read | UltraTech Cement will purchase a 23% share in India Cement as the stock reaches a 52-week high
(Disclaimer: The opinions and suggestions mentioned are from individual analysts, experts, and broking firms, not endorsed by Businessuncover. Investors should consult certified experts before deciding on investments.)
