UltraTech share price gains 1.68% to 52-week high on Kesoram acquisition. Analysts see more upside.
- Stock Market today- UltraTech's planned acquisition of Kesoram Industries Cement assets will help increase its presence in fragmented southern and West markets. Acquisition will help UltraTech move towards targeted capacity of 200mtpa and valuations of deal are considered as reasonable
UltraTech Cement share price scaled all time high of ₹9152 on the BSE in the morning trades on Friday gaining almost 1.7% post Thursday's announcement on planned acquisition of Kesoram Industries Cement assets by UltraTech . Analyst see more upside looking at benefits the acquisition will accrue.
UltraTech Cement Ltd planned acquisition of Kesoram Industries Cement capacities is intended to strengthen its presence and help gain market share in the South and Western region of the country. The step is also in the direction of the country’s largest Cement producer UltraTech achieving its targeted 200 million tonne per annum (mtpa) capacity mark from current 137.85 mtpa mark over time. The valuation of the deal though could be relatively expensive compared to its recent acquisitions however acquisition valuations is a tad lower than earlier large acquisitions of Century Textile Cement assets and JP Groups cement assets say analysts.
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The Cement Business of Kesoram consists of 2 integrated cement units at Sedam (Karnataka) and Basantnagar (Telangana) with a total capacity of 10.75 mtpa. Out of this total capacity, 8.50 mtpa is clinker backed and 2.25 mtpa is surplus grinding capacity. The cement business also has a 0.66 mtpa packing plant in Solapur, Maharashtra. Under the demerger scheme.
Ultratech will be getting these assets post completion of demerger of Cement Business of Kesoram Industries Limited into UltraTech Cement Limited
Since UltraTech did not have a manufacturing unit in Telangana the move is being looked at in a positive light. Further the consolidation in the fragmented South market is to accrue benefits and market share gains. UltraTech highlighted that the operations will be bolstered by economies of scale resulting from synergies in procurement, logistics and fixed costs.
For acquiring the Cement assets UltraTech will issue 1 equity share of the face value of Rs.10/- each for every 52 equity shares of Kesoram of face value Rs. 10/- each as recommended by the valuers and accepted by the Board.
The valuation of deal considering dilution equity by 2% & absorbing estimated Rs2200 crore debt implies acquisition Enterprise value of $100 per tonne as per analysts at Jefferies India Pvt Ltd. While analysts at Jefferies say that this valuation is a tad expensive versus recent deals analysts at Motilal Oswal Financial Services however highlight that UltraTech’s acquisition of Century Textiles’ cement business was at $106 a tonne and JP Group’s cement business acquisition at $118 a tonne. Enterprise value per tonne as per Motial Oswal Finacial Services for this transaction works out to be $102 a tonne (adjusted for surplus grinding capacity of 2.25mtpa at $30 a tonne)
The acquisition, however, is to accrue benefits as per analysts. As the acquisition will help UltraTech move towards its planned 200 mtpa capacity mark over time the acquisitions are also helping UltraTech gain market share.
Analysts at Motilal Oswal said that that UltraTech’s timely capacity expansion and increase in capacity utilization have helped the company gain a considerable market share. Its domestic grey cement capacity and volume CAGR (compound annual growth rate) at 9% and 11% over FY15-24 exceeded that of the industry at 5% each. As a result, UltraTech market share has increased to 26% in FY24 from 16% in FY15. They expect the company to further expand its market share through capacity expansion and acquisitions.
Kesoram's M&A is the third Industry M&A in the past 12 months, reaffirming our view that consolidation will continue to reshape Cement Industry's landscape in India, a positive for medium to long term, said analysts at Jefferies India Pvt Ltd.
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