UltraTech Steps Up To Protect Cement Dominance After Adani Foray

UltraTech Cement Ltd. has announced a capex of Rs 12,890 crore to expand its capacity. The move by India's biggest cement maker appears to be aimed at strengthening its dominance by volume and command pricing power after billionaire Gautam Adani's foray into the sector.

The Aditya Birla Group flagship aims to increase capacity by 22.6 million tonnes by the fiscal ending March 2025 through a mix of brownfield and greenfield expansions. The new capex is over and above the capital outlay for the ongoing and proposed expansion plans announced earlier.

As part of its ongoing capex, UltraTech plans to spend Rs 1,050 crore to raise capacity by 6.7 million tonnes across Odisha, Uttar Pradesh, West Bengal and Bihar. It had proposed 12.8 million tonnes of expansion at a cost of Rs 5,477 crore across Chhattisgarh, Madhya Pradesh, Rajasthan and Bihar. Together, these would have taken its capacity to 130.9 million tonnes by FY23.

The company now aims to take its total production capability to 159 mtpa by FY25 at a cost of $76 per tonne of cement. That's lower than all its past acquisitions in the range of $100-150 a tonne, as well as the $162 a tonne the Adani family agreed to pay for Holcim's India cement businesses.

Adani is acquiring Ambuja Cements Ltd. and ACC Ltd. in a deal worth $10 billion (more than Rs 81,000 crore), including an open offer, for a total capacity of 70 mtpa. He aims to up that to 140 mtpa in the next five years.

Kumar Mangalam Birla, chairman of Aditya Birla Group, had told BQ Prime at Davos that the Holcim deal didn't make sense financially for UltraTech Cement. “Price is in the eyes of the beholder. For us, I don't think we could have created value as much as we can in other options that we're looking at,” Birla had said.

He, however, had said that UltraTech's plans won't change due to Adani's entry. “I don't think we are going to start bidding for assets much more aggressively only because there's a new entrepreneur in the sector. That's not how it works for us. It must create value.”

“We have our own growth plans,” Birla had said.

According to Emkay Global, after the completion of UltraTech's ongoing expansion, its pan-India capacity share is likely to be 21%, with a 13-15% share in south and east, 22% in north and 35% in central and west regions. “UltraTech's capacity utilisation stood at 77% in FY22. The next phase of expansion will support volume growth and help the company retain its leadership position,” it said in a report.

The brokerage has modeled anualised growth rates of capacity and volume at 7% and 9%, respectively, over FY22-25. “Factoring-in the next phase of capacity addition by FY25, we see 7% upside to our current capacity estimates and 5% upside for volume forecast of FY26.”

Nirmal Bang, however, sees the expansion to impact profitability of the sector “negatively”. Demand growth for the Indian cement industry is likely to remain in line with the GDP growth and hence further competition for market share would create pricing wars, Mangesh Badang, cement analyst at the brokerage, told BQ Prime.

Also Read: UltraTech's New Capex To Drive Cement Consolidation In India

Shares of UltraTech fell 3.3% in morning trading. Its peers, too, slumped led by JK Cement Ltd. even as the benchmark Nifty 50 was trading 0.7% higher as of 10:35 a.m.

Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.