ULTRATECH MAKES BIG MOVE ON INDIA CEMENTS. WHAT NEXT?

The announcement by UltraTech Cement to acquire a 23 percent stake in India Cements has sparked discussions about a potential hostile takeover.

The acquisition of shares in the South India-based cement maker will place UltraTech in a significant position within India Cements, a company long associated with its owner N Srinivasan who, along with other promoter group members, holds only a 28.42 percent stake.

The Stakes and the Players

As the largest manufacturer of cement in India, the Kumar Mangalam Birla-led UltraTech's move can be seen as a calculated effort to consolidate its dominance in the market. On the other hand, India Cements, with its historical significance and strong market presence, represents a valuable addition to any portfolio.

Srinivasan, a prominent figure in the Indian cement industry and the vice-chairman and managing director of India Cements, now finds himself in a delicate position. With less than 29 percent stake, his control over the company is vulnerable. The difference between UltraTech’s newly acquired 23 percent stake and Srinivasan’s stake is slim, heightening the possibility of a power struggle.

UltraTech’s plans to pick up a major stake in India Cements comes at a time when its biggest rival in the cement industry - the Adani group - has been rapidly increasing its size and scale with acquisitions. Last week, Adani group announced that it will acquire Penna Cements for over Rs 10,000 crore, adding 10 million tonnes per annum capacity to its portfolio. Last year, it bagged a controlling stake in Sanghi Cements.

India Cements has a capacity of over 15.5 mtpa.

Aditya Birla group itself became the biggest cement manufacturer in the country when it acquired UltraTech from L&T in 2004.

Analysts believe that while UltraTech in its stock exchange filing had labeled this stake purchase as a financial investment, the rationale behind the move could be to thwart the ambitions of any other corporate rival from making a acquisition move on India Cements.

Large conglomerates such as Adani group and JSW group have been eyeing inorganic growth opportunities in the sector, where demand is expected to grow at a strong pace in the coming years, driven by rising infrastrudture spends by the Indian government and a revival of private sector capex.

While UltraTech did not disclose the names of the India Cements shareholders from whom it intends to purchase the stake, the public shareholding of India Cements is dominated by three main investors with Dmart founder Radhakishan Damani holding the biggest chunk of 20.78 percent stake, followed by ELM Park Fund Ltd holding a 5.58 percent stake and LIC, which holds a 3.6 percent stake.

As much as 20 percent equity stake in India Cements was sold in the block deal window on Thursday, 27 June.

Hostile Takeover: A Real Possibility?

A hostile takeover occurs when an acquiring company seeks to gain control of a target company against the wishes of its management. The relatively close stakes between UltraTech and Srinivasan suggest that UltraTech could potentially pursue this route. If UltraTech decides to increase its stake further, it might challenge Srinivasan’s control and push for changes in the management and strategic direction of India Cements.

While the acquisition of a 23 percent stake will not trigger a mandatory open offer of 26 percent from public shareholders, as the stake purchase is below the threshold of 25 percent needed to exercise control under Sebi regulations, UltraTech can go ahead and announce a open offer to acquire stake from the public shareholders if it intends to take over control of the company.

Additionally, the broader context of the Indian cement industry should be considered. The sector has seen consolidation over the past few years, with major players looking to enhance their capacities and market share through acquisitions. UltraTech’s recent move could be interpreted as part of this larger trend, positioning itself more favourably in an increasingly competitive market.

The Road Ahead

The coming months will be crucial in determining whether this acquisition will lead to a hostile takeover. Stakeholders and market analysts will be watching closely as both companies navigate this complex situation. For now, the possibility of a hostile takeover at India Cements remains speculative, but given the stakes and the players involved, it cannot be ruled out.

Emails sent to UltraTech Cement, India Cements and Radhakishan Damani did not elicit a response till the time of publishing.

2024-06-27T07:02:23Z dg43tfdfdgfd