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Billionaire Kumar Mangalam Birla-led Aditya Birla Group-owned UltraTech Cement is acquiring a non-controlling 23% stake in Chennai-based India Cements.
The company will purchase 7.06 crore equity shares of India Cements at a price of up to Rs 267 per share, with a total deal value of Rs 1,885 crore (about $225 million), the company said in an exchange filing.
The acquisition comes as the market leader faces increasing competition from the Adani Group, which has been rapidly expanding its presence in the cement industry. Adani Group is currently India's second-largest cement player. It owns Ambuja Cement.
Strengthening market presence
The acquisition by UltraTech is crucial as it continues to consolidate its position as the largest cement maker in India.
Earlier this year, UltraTech acquired a 1.1 million tonnes per annum (mtpa) cement grinding unit from India Cements in Maharashtra for Rs 315 crore.
It also acquired Kesoram Industries' 10.75 mtpa (million tonnes per annum) cement business. With a consolidated manufacturing capacity of 152.7 mtpa, UltraTech remains significantly ahead of the Adani Group's 77.4 mtpa.
The Adani Group, which entered the cement market in September 2022 by acquiring Ambuja Cement and its subsidiary ACC, has been on an aggressive expansion path.
Recently, it acquired Penna Cement for Rs 10,422 crore, aiming to reach a manufacturing capacity of 140 mtpa.
Why did India Cements choose to sell a stake?
India Cements has been struggling with high operating costs and working capital shortages.
As of December 31, it recorded an EBITDA (earnings before interest, tax, depreciation, and amortisation) of just Rs 241 per tonne of cement produced, compared to over Rs 1,100 for larger players like UltraTech and Ambuja.
Care Ratings downgraded India Cements' long-term credit rating to BB+ with a negative outlook in February, citing the company's weak operational performance and continued loss of market share in the southern region.
The rating agency highlighted India Cements' higher power and fuel requirements compared to the industry average, contributing to its subdued performance.
Notably, The company's net debt to EBITDA ratio is expected to remain stretched unless it resorts to significant deleveraging or equity infusion.
It has a cement capacity of 14.45 million tonnes per annum, primarily in the South Indian markets.
The company posted a turnover of Rs 5,112 crore in 2023-24, compared to Rs 5,608 crore in 2022-23 and Rs 4,858 crore in 2021-22.
UltraTech's strategic acquisition of a stake in India Cements is part of its broader expansion plan. The company has earmarked Rs 32,400 crore for capital expenditure over the next three years, aiming to increase its grey cement capacity to 198.2 mtpa.