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UltraTech, India's largest cement player owned by Aditya Birla Group, has announced that its board has approved picking up a 23% non-controlling stake in India Cements in a deal valued at around Rs 1,885 crore. "This deal can be mutually beneficial as UltraTech can work on strategic cement supply agreement to gain market share in undersupplied AP/Telangana belt and ICL's financial performance can also improve as volume improves," Tushar Chaudhari, Research Analyst, Prabhudas Lilladher, said.
The deal comes two weeks after Adani Group unit Ambuja Cement announced acquisition of Hyderabad-based Penna Cement at an enterprise value of Rs 10,422 crore, adding to its capacity and market share in southern India. Ambuja Cement will acquire 100% of Penna Cement from existing promoter group P Pratap Reddy and family.
Ever since the Adani Group entered the cement business by acquiring assets of Ambuja Cements and ACC in 2022 and thus becoming the No. 2 player in India, the cement sector is in a ferment as the challenger Adani and the leader Birla look for aggressive consolidation in their hunger for market share.
Adani Group, which is a key player in India's infrastructure and materials sector with a strong presence in airports, ports, mines, energy and real estate, now eyes the top position in the cement sector. But the incumbent Aditya Birla Group, which owns the industry leader Ultratech Cement, is increasing capacity at a furious pace, widening the already significant gap with Adani which has nearly half of UltraTech's capacity.
India's total production capacity is nearly 595 million tonnes, according to a Crisil Market Intelligence and Analytics report. At present, Adani's Ambuja, with its subsidiaries ACC Ltd, has the capacity to produce 77.4 million tonnes of cement annually from 18 integrated cement manufacturing plants and 18 cement grinding units across the country. Experts expect consolidation to continue in the industry and more inorganic than organic expansion.
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Leader Ultratech is trying to widen the lead
Early this month, UltraTech underlined its global stature by crossing 150 million tonne in production capacity with the commissioning of two greenfield units in Tamil Nadu and Chhattisgarh. The country’s largest producer of cement can now produce as much as 150% of cement produced in the US, while equaling four-fifth of the total production of cement in Europe.
UltraTech plans to raise its production capacity to 200 million tonne, chairman Kumar Birla had said at the company’s annual general meeting last year, following it up with an announcement to invest Rs 13,000 crore for adding 21.9 million tonne to its existing capacity through a combination of greenfield and brownfield expansion.
The flagship company for cement in the Aditya Birla Group, UltraTech has added nearly 19 million tonne of capacity over the last 12 months, and will further add more than 35 million tonne of capacity across 16 locations. It will spend Rs 32,400 crore on capital expenditure over three years. “With a mix of integrated cement plants, grinding units, bulk terminals across 59 locations in India along with 307 ready mix concrete plants, UltraTech’s scale and capacity footprint is unparalleled,” Kumar Mangalam Birla, chairman of the Aditya Birla Group, said.
UltraTech had also acquired Kesoram Industries last year, and the completion of this deal is seen augmenting the cement-maker’s capacity to 198.2 million tonne. It has announced the acquisition of a grinding unit in Parli, Maharashtra, from India Cements.
UltraTech posted a 35% increase in quarterly profit to Rs 2,259 crore on the back of lower input costs and higher volume growth. Revenue climbed 9% to Rs 20,419 crore in Q4 FY24.
Adani's warchest is ready
The Adani Group is keeping aside a war chest of $3 billion for acquisitions, ET had reported two weeks ago based on information from sources. Adani is evaluating multiple cement companies for acquisition including Gujarat-headquartered Saurashtra Cement and the cement business of Jaiprakash Associates as well as ABG Shipyard-owned Vadraj Cement, people familiar with the matter told ET. Adani already has Sanghi and Penna in its bag.
Adani is aggressively pursuing an inorganic strategy to boost capacity and emerge as the largest cement manufacturer within the next three to four years, overtaking the Aditya Birla Group’s UltraTech.
Adani's bet on cement business relies on India's fast-paced expansion of its infrastructure which requires a lot of cement. India has been building roads, highways, bridges, airports and houses at a breathless pace. The country is the second largest producer of cement in the world after China. But its per capita consumption is just 250 kilogram compared to China’s 1,600 kilogram. This is what attracted Adani Group Chairman Gautam Adani to cement business in 2022
Adani has a lot going for it. The group has certain enablers for capacity enhancement and it already has land in possession and some are in the advanced stages of acquisition. It has a cumulative 8,000 million metric tonnes of limestone reserve, a major raw material for the cement industry, " in possession at nil to nominal premium", Adani Cements has said. Moreover, it has 40 per cent of Fly Ash requirements under the long-term arrangement, which will increase to over 50 per cent by 2028. Ambuja has "better enterprise risk management" and 65 per cent of the total cost of cement has synergies with the group's other operations. On top of that, Ambuja continues to remain debt-free.
India's cement build-up
India is the world’s second-largest producer of cement, and almost all large players have been rapidly adding capacities as they look to capture the continued growth in demand expected over the next few years. Besides Birla and Adani, which are the dominant players, Dalmia Bharat, JK Cement and Shree Cement have also announced capacity expansion plans.
The demand for cement in India is expected to grow at a sturdy pace supported by government-led spending on infrastructure and housing.
The overall cement industry in the country is likely to add 150-160 million tonne of capacity in five years, as per CRISIL. In the last five years, cement-makers have added close to 120 million tonne of capacity, taking the country’s total to around 600 million tonne.
India’s cement giants are betting on a surge in demand as the government is expected to further push ahead with its infrastructure development plan, driven by record capital expenditure.
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