Cement Wars Heat Up As Ultratech Reportedly Back In Talks To Acquire Orient Cement

Industrialist Kumar Birla is making strategic moves to acquire Orient Cement, aiming to bolster Ultratech’s presence in South India, according to a report by The Economic Times.

Historical Context: The Indian cement industry has seen significant consolidation over the years, with major players like Ultratech and Adani Group vying for dominance. Ultratech, a part of the Aditya Birla Group, has been a key player in the industry, consistently expanding its footprint through strategic acquisitions. The competition intensified with Adani Group’s aggressive expansion plans, making the cement sector a battleground for market share.

Current Developments:

• Negotiations: UltraTech is in advanced discussions with CK Birla, Kumar Birla’s uncle and the promoter of Orient Cement. The talks have resumed recently, indicating a renewed interest in the acquisition.
• Stake and Valuation: The Birla family and private investment vehicles hold a 37.9% stake in Orient Cement, which has a market value of ₹6,000 crore. UltraTech has reportedly offered ₹350-375 per share, a 22% premium over the current market price of ₹310.
• Enterprise Value: The offer translates to an enterprise value of ₹7,300-7,800 crore ($840-$938 million) or $109-110 per ton based on Orient Cement’s installed capacity of 8.5 million tons per annum. This valuation aligns with recent transactions in the mid-tier cement sector.
• Strategic Importance: Acquiring Orient Cement would significantly enhance Ultratech’s footprint in the southern market, a crucial area for its expansion plans. Kumar Birla’s re-entry into the acquisition race underscores his determination to strengthen Ultratech’s position against competitors like Adani.
• Adani’s Position: Adani, which holds India’s second-largest cement capacity, has been in talks with CK Birla since late last year but is reportedly hesitant due to the high valuation demanded.

Recent Industry Moves:

• Ultratech’s Previous Acquisition: In June 2024, Ultratech acquired a 23% stake in India Cements for ₹1,885 crore, leading to a 5.5% surge in its shares. This move was seen as a counter to Adani Group’s growing influence in the cement industry.
• Adani’s Expansion: Around the same time, Ambuja Cements, an Adani Group firm, acquired Penna Cement for ₹10,442 crore. This acquisition is part of Adani’s goal to reach a capacity of 140 million tonnes per annum by 2028 and capture a 20% market share.

Market Reaction:

• Share Prices: Shares of Ultratech were up by 0.32% at ₹11,910.15, while Orient Cement saw a 2.63% increase, trading at ₹314.30. Ambuja Cements, however, was down by 0.68% at ₹688 on Thursday morning.

Summary:

• Kumar Birla is in advanced talks to acquire Orient Cement to strengthen Ultratech’s presence in South India.
• The Birla family holds a 37.9% stake in Orient Cement, valued at ₹6,000 crore.
• Ultratech’s offer is ₹350-375 per share, a 22% premium over the current market price.
• The acquisition would enhance Ultratech’s footprint in the southern market.
• Adani Group has been hesitant due to high valuation demands.
• Ultratech previously acquired a 23% stake in India Cements, countering Adani’s influence.
• Ambuja Cements, an Adani firm, acquired Penna Cement as part of its expansion plans.
• Share prices of Ultratech and Orient Cement saw an increase, while Ambuja Cements saw a slight decline.