ULTRATECH POISED TO BECOME NEW 'THALAIVA' IN SOUTH POST INDIA CEMENTS ACQUISITION, SAY ANALYSTS

The Street cheered Ultratech Cement's acquisition of a 23 percent stake in Chennai-based India Cements for Rs 1,889 crore, pushing the stock to a record high of Rs 11,875 per share on June 27. Analysts predict this deal could lead to a larger stake purchase and establish a new 'Thalaiva' (dominant player) in the Southern market.

This move came two weeks after the Adani Group's Ambuja Cements announced its acquisition of Penna Cements, a South India-based company, for Rs 10,422 crore.

Investec analysts noted that Ultratech's acquisition could boost its capacity share in South India from 11 percent to 18 percent, particularly enhancing its presence in Telangana, where it previously had no operations.

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India Cements currently has a cement production capacity of 14.5 million tonnes per annum (MTPA) and a clinker capacity of 11.13 MTPA. This complements Ultratech's existing capacities in the South, which include 2 MTPA in Telangana, 5 MTPA in Tamil Nadu, and 10.6 MTPA in Andhra Pradesh.

CLSA analysts view this transaction as a strategic entry point for Ultratech, likely to increase industry consolidation and pricing power. Meanwhile, BofA analysts suggest that the investment could enhance Ultratech's market prospects in the South, potentially leading to a majority stake in the future.

Ultratech, India's largest cement producer, acquired 70.5 million shares of India Cements at an average price of Rs 268 each from Radhakishan Damani and related entities in two block deals. Despite speculation of a hostile takeover, Ultratech described the purchase as a 'non-controlling financial investment.'

Tushar Chaudhari, a research analyst at Prabhudas Lilladher, commented that the deal could benefit both companies. Ultratech could secure a strategic cement supply agreement to expand its market share in the underserved Andhra Pradesh and Telangana regions, while India Cements could see improved financial performance as volumes increase.

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"We remain optimistic about industry leaders, expecting Ultratech and Ambuja Cement to continue gaining market share. Smaller, less efficient players will face challenges, leading to ongoing consolidation in the cement industry. Strong balance sheets will benefit the leading companies, though competition will also intensify," he added.

So far this year, shares of Ultratech Cement surged over 11 percent, while India Cements rose by 13 percent. In comparison, the benchmark Nifty 50 index jumped by 9 percent during the same period.

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2024-06-28T04:06:07Z dg43tfdfdgfd