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ICICI Securities Report
UltraTech Cement Ltd. has purchased ~23% stake in South-India major India Cements Ltd. from investor Mr. RK Damani and family for a cash consideration of ~Rs 19 billion (valued at ~$91 enterprise value/tonne).
While the deal objective is stated to be a ‘non-controlling financial investment', we see it as a smart ‘foot in the door' move towards a potential acquisition bid for India Cements.
With acquisition of a controlling stake appearing to be a ‘long shot' and Street's misplaced judgement of seeing the deal as a potent positive for pricing outlook (citing odds of rising consolidation), we stay neutral on the deal.
Although we value the 23% stake at Rs 142/share of UltraTech Cement (being the difference in EV/t of UltraTech Cement and the current deal), we are not convinced on assigning a higher valuation multiple to the company, citing the underlying competitive intensity despite rising industry consolidation.
Hence, we downgrade the stock to Reduce (from Hold) with target price of Rs 10,553 (Rs 10,411 earlier).
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