Ultratech- The Dark Horse of the Race

The biggest cement company of India and the largest exporter of cement clinkers has been the dark horse of the race on the Street. UltraTech is the part of Aditya Birla group and an extension of Grasim Industries. The company had been feared for its fast acquisitions and in July, it was restricted by the Competition Commission of India from going after the Lafarge assets. Lafarge’s 11mtpa India asset was bagged by the most unlikely firm, Nirma. Had Ultratech been able to bag Lafarge’s assets, its capacity would have crossed 100 mtpa mark that currently stands at 91.1 mtpa.

The lead:

From being a small player, UltraTech has constantly added value to its business by adding capacities, entering new regions and aggressive acquisitions. Its capacity has grown fourfold in a decade, from 15.5 mtpa in 2004-05 to 66.2 mtpa in 2016-16, at a CAGR of 14.1%. Competition Commission of India has approved the acquisition of Jaiprakash Group’s 21.1 mt of cement assets by UltraTech. This approval by CCI has catapulted the cement giant way ahead of its all competitors, especially LafargeHolicim, its US-based closest competitor. LafargeHolicim controls ACC and Ambuja Cements in India.

Apart from its capacity, the company’s earning has also grown at a Compound Annual Growth Rate of 25.6%. In almost a decade, Ultratech Cement share price has also gone up by 17.5%. But last three to four years have provided the ‘Dark Horse’ the lead over its large peers.

Race to the top:

Ultratech Cement BaseExcluding the 11 mt capacity of Lafarge India, the consolidated capacities of ACC and Ambuja Cements remain at 58-60 mt since the Calendar Year 2011. ACC and Ambuja were waiting for the restructuring nod that came in 2013. Both the companies have not seen significant capacity addition since Calendar year 2011.

Last month, ACC announced the commissioning of a 2.8 mt unit in Chhattisgarh, but the expansion work had started before the announcement of restructuring. On the other hand, Ultratech had emerged as India’s largest cement entity with 19 new expansion projects and inorganic growth. With the acquisition of JP cement, Ultratech’s capacity has zoomed up to 91.1 mtpa. The company is likely to exceed Industry growth in this financial year. However, LafargeHolicim will also seek fuel after its global restructuring that is expected to be completed in a few quarters.

Conclusion:

The proposed restructuring of both ACC and Ambuja Cements have just been approved by the Government. The Street is looking at the restructuring in a positive light. These transactions would enable the group to create a linear corporate structure. The restructuring is expected to produce the Synergy potential of Rs. 900 crores from the Indian Operations. With so much going on, will UltraTech be able to sustain its lead?

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