UltraTech acquisition fuels market consolidation talks

Ultratech Cement’s acquisition of a 23 per cent stake in Tamil Nadu-based India Cements is another instance of growing consolidation in the cement market in India.

The deal will raise Ultratech’s share, based on India Cements’ revenues in FY24, in the domestic market by 230 basis points if the latter is formally acquired by the former in due course.

India Cements’ share was up 11.5 per cent on Thursday on market expectations of an open offer.

India Cements reported net sales of Rs 5,112.2 crore in FY24 with a market share in revenue of 2.3 per cent.

It is the biggest player in southern India after The Ramco Cement, which reported net sales of Rs 9376.4 crore in FY24.

In comparison, Ultratech Cement reported net sales of Rs 70,908 crore in FY24, accounting for 31.5 per cent of the combined revenues of cement makers in the country.

This excludes Kesoram Industries’ cement division, which Ultratech acquired in October last year at an enterprise value of Rs 7,600 crore in an all-share deal.

Kesoram’s cement division reported revenues of Rs 3,740.5 crore in FY24.

The United States’ Justice Department and European Commission use firms’ revenue market share to determine the competitive intensity.

The revenue market is then used to calculate Herfindahl-Hirschman Index (HHI) is a common measure of market concentration of an industry.

Earlier this month, Adani group-owned Ambuja Cements acquired Hyderabad-based Penna Cement at an enterprise value of Rs 10,422 crore.

In December 2023, Ambuja Cements had acquired Sanghi Industries, which owns a plant in Gujarat, at an enterprise value of Rs 5,185 crore.

These two acquisitions added nearly Rs 3,000 crore to Ambuja Cements’ annual net sales and raised its revenue share by nearly 150 basis points from 14.7 per cent currently.

In the past 10 years, Ultratech’s revenue share in the domestic cement market has gone up by 1,200 basis points.

In this period, the company acquired the cement assets of Jaiprakash Associates, Binani Cement, and Century Textile & Industries.

As a result, Ultratech Cement’s net sales in FY24 were more than twice Ambuja Cements’ consolidated net sales at Rs 33,159.6 last financial year.

This includes the numbers of ACC, which is a subsidiary of Ambuja Cements.

Till a decade ago, the combined revenues of Ambuja Cements and ACC were similar to those of Ultratech, but the former two (owned by Lafarge-Holcim till two years ago) have lost market share.