Ultratech to invest Rs.12,886 crore to expand cement capacity

by 5paisa Research Team Last Updated: 2022-06-03T17:44:53+05:30

The cement sector is seeing a lot of action of late. Just a month back, Adani group bought out Holcim stake in ACC and Ambuja Cement. Once the open offer is also completed, Adani would have gotten control of nearly 70 MTPA of cement capacity at the stroke of a pen, paying $10.50 billion in the process.

This makes Adani the second largest cement player in India by manufacturing capacity after Ultratech and ahead of Shree Cements.

However, knowing the Adani style of aggressive functioning, Ultratech was not willing to sit back and relax. They know that Adanis would not be satisfied with 70 MTPA capacity and would try to close in on Ultratech’s 120 MPTA.

It is to pre-empt this move and gain a first mover advantage that Ultratech has embarked upon on a massive expansion plan to expand capacity by more close to 20% over the next three years. Here is the game plan.

UltraTech, the cement arm of the Aditya Birla group, plans to invest a sum of Rs12,886 crore to augment its existing cement capacity by 22.6 million tonnes per annum (MTPA) over the next 3 years.

These will be done through a mix of brownfield and greenfield expansion on a pan India basis. What is really gratifying is that the fresh capacity addition comes at an extremely competitive incremental cost of $76 per tonne.

Of course, there is already capacity expansion that is underway at Ultratech and the new capacity addition will be completed and go onstream by FY25. Once the expansion plan is completed, Ultratech cement capacity in India would have gone up from the current 119.50 MTPA to a new high of 159.25 MTPA by FY25. This is not counting any inorganic or NCLT acquisitions that the Ultratech group does in between this period.

The mega investment plan has already been approved by the board of directors of Ultratech at its meeting held on Thursday, 02nd June 2022. In fact, the ongoing expansion plan will enhance the cement capacity by 19.8 MTPA by the end of 2022 to 136.25 MTPA.

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The balance thrust will come from the now planned capacity expansion which will take the total capacity of Ultratech to 159.25 MTPA by the close of FY25 i.e. March 2025.

Ultratech was one of the first to appreciate that to survive and thrive in the cement business in India, it would be essentially to constantly keep expanding capacity on a pan-India basis. Incidentally, Ultratech has doubled its capacity in the last 5 years.

Cement has major chunk of its demand coming from housing and from government and private infrastructure projects like roads, bridges and other infrastructure. Low cost housing is expected to be another big focus area that can boost the demand for cement in India.

Ultratech is already the third largest cement player in the world, outside of China. One clear trigger that has put Ultratech also on an aggressive mode is the recent developments wherein Adani managed to takeover Ambuja Cement and ACC in a swift move.

Adani already has some capacity build up in place and combined with the ACC and Ambuja deal, the Adani group is expected to have installed cement capacity of 80 MTPA by end of 2023.

What is more interesting is the cost aspect. For instance, Ultratech is undertaking the capacity expansion at a cost of $76/tonne. How does that compare with what Adani has paid for ACC and Ambuja. Let us look at the open offer price.

Based on open offer made by Adani Group, Ambuja Cement capacity is valued at $299/tonne and that of ACC at $131/tonne. Clearly, Adani has paid top dollar and that could be the edge for Ultratech. The expansion is just an attempt to underline that.

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