UltraTech eyeing Volume expansion in south, unlikely to disturb prices

Deal with Kesoram Industries likely to add 10.75 million tonnes capacity under UltraTech Cement's fold

UltraTech Cement will enter a new state and increase its presence in South India following its move to acquire the cement business of Kesoram Industries. According to cement analysts, this is unlikely to disrupt the price discipline, but volume expansion is on the cards.

On November 30, Kesoram Industries decided to demerge its cement business and transfer it to UltraTech Cement in a share swap deal.

As of September, UltraTech Cement had an operational capacity of 20.5 million tonne per annum (mtpa) in South India. Then, it was the smallest market in its pan-India region-mix. This is set to change with acquisitions and expansions.

The deal with Kesoram Industries is expected to bring an additional 10.75 million tonnes of capacity under UltraTech Cement’s fold - two integrated cement units at Sedam (Karnataka) and Basantnagar (Telangana). The deal also marks the entry of the country’s biggest cement producer in the Telangana market.

“Kesoram’s asset is currently at 65 per cent capacity utilisation, and UltraTech is expected to improve the utilisation by taking advantage of its Pan-India presence. Despite this, we do not expect any material disruption in the southern region in terms of supply and pricing discipline,” said Vincent KA, Research analyst at Geojit Financial Services.

Kesoram’s cement assets include a 0.66 mtpa packing plant in Solapur, Maharashtra.

The South Indian market is peculiar in two aspects – highest over-capacity and most fragmented in India. These aspects also weigh on the pricing in the market, where so far cement producers have managed to hold price discipline. Price discipline is an industry term that indicates the absence of price wars, usually through cuts.

“Consolidation in the region by acquiring existing assets rather than adding new capacity by larger players is considered good for the market to maintain pricing discipline,” said Vincent KA from Geojit.

A common expectation is increased volumes in markets such as Maharashtra.

“Dispatches from Karnataka to Maharashtra will increase which may have some impact on pricing. The quantum of impact is difficult to predict though,” said an analyst with a domestic brokerage firm, who did not wish to be quoted.

“We expect less of a disruption in the Southern market and more of an increased dominance of UltraTech in markets of Maharashtra,” another cement executive said.

In addition to the Kesoram deal, UltraTech is expected to add another 15 mtpa by FY27 in the South market, through planned expansions. Analysts have noted, that with the expansions and the acquisition, South is likely to overthrow West India as the lead market for the company capacity-wise.  At present, South India has the largest capacity industry-wise, at 180 mtpa, compared to other regional markets of West, East, Central and North India.