Stock Market today - UltraTech's proposed acquisition of Kesoram Industries Cement assets is set to bolster its presence in the fragmented southern and western markets. This strategic move aligns with UltraTech's goal of reaching a targeted capacity of 200mtpa, and analysts find the deal valuations reasonable.
UltraTech Cement's stock price hit an all-time high of ?9152 on the BSE, marking a nearly 1.7% gain after Thursday's announcement regarding the planned acquisition of Kesoram Industries Cement assets. Analysts express optimism about further upside potential, considering the benefits derived from the acquisition.
The acquisition of Kesoram Industries Cement capacities by UltraTech Cement Ltd aims to enhance its market share in the southern and western regions of India, moving closer to its ambitious target of 200 million tonnes per annum (mtpa) capacity from the current 137.85 mtpa. Although the deal's valuation may seem relatively expensive compared to recent acquisitions, analysts note it is slightly lower than the earlier large acquisitions of Century Textile Cement assets and JP Group's cement assets.
Kesoram's Cement Business comprises two integrated units in Sedam (Karnataka) and Basantnagar (Telangana) with a total capacity of 10.75 mtpa. UltraTech will obtain these assets through the demerger of the Cement Business of Kesoram Industries Limited into UltraTech Cement Limited.
This move is viewed positively as it provides UltraTech with a manufacturing unit in Telangana and contributes to the consolidation in the fragmented southern market. UltraTech emphasizes that operations will benefit from economies of scale, resulting from synergies in procurement, logistics, and fixed costs.
To acquire the Cement assets, UltraTech will issue 1 equity share of ?10 face value for every 52 equity shares of Kesoram, following the valuers' recommendation and the Board's acceptance.
Analysts at Jefferies India Pvt Ltd estimate the acquisition's enterprise value at $100 per tonne, considering a 2% dilution in equity and absorbing an estimated debt of ?2,200 crore. While some analysts view this valuation as somewhat expensive compared to recent deals, others point out that UltraTech's acquisition of Century Textiles’ cement business was at $106 a tonne, and JP Group’s cement business acquisition was at $118 a tonne. Motilal Oswal Financial Services calculates the enterprise value per tonne for this transaction at $102 (adjusted for surplus grinding capacity of 2.25mtpa at $30 a tonne).
Despite differing views on valuation, analysts generally agree that the acquisition will contribute to UltraTech's journey towards its planned 200 mtpa capacity and help it gain market share. Timely capacity expansion and increased capacity utilization have allowed UltraTech to grow its market share considerably, from 16% in FY15 to 26% in FY24. Analysts expect further expansion through capacity expansion and acquisitions.
Jefferies India Pvt Ltd analysts consider Kesoram's M&A as the third industry M&A in the past 12 months, indicating ongoing consolidation that is reshaping the Indian Cement Industry's landscape and is viewed positively for the medium to long term.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies. We advise investors to check with certified experts before taking any investment decisions
