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The UltraTech Board has approved acquisition of ~33% stake from the promoters & associates of India Cements (ICL) at Rs390/sh (EV: US$121/t; outflow: Rs19bn), subject to regulatory approvals. This combined with the 23% stake acquired in Jun-24 (link), takes UltraTech’s total stake to 56% (EV: US$108/t). Besides this, UltraTech has made an open offer for 26% equity stake at Rs390/sh. It is significantly strengthening its position, and we expect its capacity market share to more than double in the South, to ~25% by FY27E. UltraTech India's grey cement capacity is likely to cross 200mt by FY27E (~12% CAGR). This will help the company achieve industry-leading volume growth, despite its large scale, and the lower opex/capex would boost return ratios. The industry profitability could remain capped in the near term, in our view, owing to fight for market share; we expect this to continue for another 4-6 quarters. However, consolidation will help inject price discipline and is likely to generate significantly better profitability/return ratios in the longer term. We maintain BUY on the stock, and Jun-25E TP at Rs12,800/sh, based on 20x EV/E

Deal contours: The Board of UltraTech has approved purchase of 32.72% equity stake of the promoters and their associates in ICL, at Rs390/sh (EV: US$121/t; Exhibits 1&2). In our note, we had mentioned that UltraTech is unlikely to restrict its financial investment in ICL; this is a precursor to increasing its stake and converting it into a strategic acquisition ahead. The transaction is subject to approval from the CCI, and is expected to be consummated within six months. India Cements has clinker/cement capacity of 11.5mt/14.5mt, respectively.

Strengthening position, particularly in TN; a step to >200mt capacity by FY27E Given the limited availability of limestone in TN, the said transaction is an endeavor to extend the UltraTech footprint, particularly in the state. Assuming 70/75% utilization with EBITDA/t of Rs1,000/1,200 in FY26E/FY27E (UltraTech has a good track record of turning around the acquired assets), the implied valuation stands at 13.5x/10.5x EV/E, 30-35% discount to what UltraTech is currently trading at. These assets are likely to generate EBITDA of Rs10-13bn in FY26/FY27E, which would be ~5-6% of our current estimates (currently not factored into our estimates). On acquisition of Kesoram/ICL and based on the on-going expansions, UltraTech India's grey cement capacity is likely to increase to 209mt (vs 150mt now) by FY27E (~12% CAGR).

Top groups gaining mkt share; UltraTech’s FY27E share at >20% in the South Building in the already announced expansions/acquisitions, we estimate that Top-5 group capacity market shares are likely to increase, from 40% in FY24 to ~58% by FY27E, with the biggest delta to be driven by UltraTech (~1,450bps) and the Adani Group (~275bps). We estimate that UltraTech capacity market share would increase, from 11% in FY24 to 25% by FY27E, in line with its capacity market share of >20% in other regions

Consolidation: Near-term pain; long-term gain, in our view Profitability could remain capped in the near term, as companies may look to improve utilization given acquired assets are operating at low utilization levels. We expect this scenario (ramp up of assets, consolidation) to continue for another 4-6 quarters at least. We believe consolidation will be positive for price discipline/improvement, and can generate significantly better profitability/return ratios in the longer term. The potential acquisition candidate is also likely to see a further re-rating.

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