Ultratech buys 32.72pc of India Cements for $472mn

India's top cement maker Ultratech will spend 39.54bn rupees ($472.2mn) to own a controlling stake in fellow producer India Cements, and raise its domestic cement capacity by 14.45mn t/yr to 164mn t/yr.

Ultratech will pay Rs390/share to acquire a 32.72pc stake, and emerge as the majority shareholder in India Cements with a 55.5pc stake. The move will also trigger an open offer under which Ultratech could acquire up to a 26pc additional stake from the public at Rs390/share.

Ultratech's latest move comes a month after it bought a 22.77pc stake in India Cements from an investor for $226mn at Rs267/share as an investment. The owners of India Cements approached Ultratech subsequently with a proposal to sell their 32.72pc stake.

The deal takes Ultratech closer to its target of 200mn t/yr capacity and reinforces its position as the largest Indian cement maker, while improving its overall market presence in the southern states. A larger capacity will also bring in economies of scale and a greater bargaining power in sourcing key fuels, petroleum coke and thermal coal.

India Cements has a capacity of 14.45mn t/yr, of which nearly 13mn t is in southern India, particularly in the state of Tamil Nadu, Ultratech said on 28 July.

Ultratech's latest acquisition comes weeks after Adani Group-controlled Ambuja Cements acquired Penna Cement for $1.25bn. Penna has 10mn t/yr of operational cement manufacturing capacity and is adding another 4mn t/y over the next 12 months. Adani's latest deal raised the group's capacity to 89mn t/yr, strengthening its position as the country's second-largest cement producer. Adani is eyeing 140mn t/yr capacity by 2028 while Ultratech has set a 200mn t/yr target for 2030.

The Indian cement sector has seen increasing consolidation as smaller regional producers face an extremely challenging operating environment. Such regional participants have been exiting the sector as they are unable to compete with national firms, giving way to a wave of consolidation in the industry.

The aggressive medium-term capacity targets of larger companies are unlikely to be achieved organically. Capacities totalling more than 210mn t/yr have changed hands in the past decade, according to industry estimates.

Rapid urbanisation, a growing middle class and affordable housing, as well as the construction and other infrastructure sectors, are expected to drive growth in the cement sector. India is the world's second-largest cement market after China with an installed capacity of about 550mn t/yr.

There is significant potential for cement sector growth in India. The country's consumption is 242kg per capita compared with a global average of 525kg, Adani said after it entered the sector in September 2022 with the acquisition of ACC and Ambuja Cement, the two listed Indian subsidiaries of Holcim, for $10.5bn.

By Ajay Modi