Exactly a month after acquiring a 23% holding from DMart founder Radhakishan Damani, UltraTech Cement, a subsidiary of the Aditya Birla Group and the sector's top player, said that it will purchase an additional 32.72 percent ownership in South-based India Cements at Rs 390 per share. This will be followed by the necessary 26% open offer, and if it is fully subscribed, UltraTech will own 81% of India Cements. It will signify the departure of the India Cements promoter group, led by N Srinivasan. The sum paid for this transaction is 46 percent higher than the Rs 267 Damani sold his share for.

From a strategic standpoint, it provides the buyer with a significant presence in the South market, which is highly fragmented with over 45 participants. Supply today is expected to easily exceed capacity by two times, making the region the lowest in terms of capacity utilization - 60-65 percent vs roughly 7% nationally. Of course, the move is also intended to preempt the Adani Group-owned Ambuja Cements, which has already acquired Sanghi, MyHome's grinding unit, and Penna, from acquiring India Cements, a company with a capacity of 14.45 million tonnes per annum (mtpa), with nearly 13 mtpa in the South (primarily in Tamil Nadu) and 1.5 mtpa in Rajasthan.

Talks of India Cements exiting the business have been around for a time. It runs with poor operating margins and high costs, meaning that UltraTech will need to invest time in turning the business around. "With the game being all about size, a company like India Cements would have struggled to have an impact in the future. Larger capacity implies more pricing power, which puts UltraTech in a good position, according to Deven R Choksey, Chairman and Managing Director of wealth management and investment advice business DRChoksey Finserv.

With this acquisition, UltraTech's total installed capacity would exceed 165 mtpa, followed by Ambuja at around 80 mtpa. Kumar Mangalam Birla, Chairman of Aditya Birla Group, informed shareholders that the business aimed to reach a capacity of 200 mtpa. In a statement issued following the acquisition of India Cements, he stated, "UltraTech Cement's investments over the years, both organic and inorganic, have been designed to propel India to become a global building solutions champion." "The India Cements opportunity is exciting because it allows UltraTech to better serve the southern markets."

Emkay Global issued a buy call on UltraTech shortly after its announcement yesterday, stating, "It is significantly strengthening its position, and we expect its capacity market share to more than double in the South, to around 25% by FY27." Choksey believes the South is a significant market, both in terms of limestone availability and regional growth. "After the Union Budget 2024, we expect a lot of investment to come into Andhra Pradesh, and the establishment of industrial corridors would be a great benefit to the cement sector. Being in the commodities industry is all about scale, and the India Cements acquisition is a significant step for UltraTech."