This cement stock has almost doubled from June low; trades at new high

India Cements stock hit a new high of Rs 343.85, surging 6% in an otherwise volatile market. The stock has zoomed 50% since June 25.

The India Cements (ICL) stock hit a new high of Rs 343.85, surging 6 per cent on the BSE in Thursday’s intra-day trade in an otherwise subdued market amid buzz of an open offer by the country’s largest cement maker UltraTech Cement.

The stock of Tamil Nadu-based cement company has nearly doubled or zoomed 99 per cent from its previous month low of Rs 172.55 touched on June 4. Since June 25, the stock price of India Cements has rallied 50 per cent.

At 11:09 am; ICL was quoting 5.8 per cent higher at Rs 341.70, as compared to 0.01 per cent rise in the BSE Sensex. While, the BSE Midcap and BSE Smallcap index were down 1.3 per cent each. The average trading volumes in ICL counter jumped 1.5 times with a combined 26.44 million shares of the company changing hands on the NSE and BSE.

In an exchange filing, UltraTech Cement said on June 27 that the board of directors of the company approved making a financial investment to purchase up to 70.6 million equity shares of ICL, at a price of up to Rs 267 per share. This non-controlling financial investment constitutes around 23 per cent of the equity share capital of ICL.

UltraTech had purchased 70.56 million shares of ICL at an average price of Rs 268 apiece from billionaire investor Radhakishan Damani and his associated entities in two block deals. The acquisition of the 23 per cent stake will not trigger an open offer, but will ensure that a rival player is not able to make a bid for ICL.

Although the same does not trigger an open offer, acquisition of controlling stake in India Cements in the future cannot be ruled out, according to analysts.

As of now, an open offer is not triggered as it does not breach 25 per cent stake. However, further stake acquisitions to control majority ownership in India Cements cannot be ruled out. The investment follows the recent acquisition of Penna Cements by Ambuja and can be viewed as Ultratech’s strategic move to secure its regional and market leadership, Sharekhan said.

ICL has been in the news for several years as a potential merger & acquisition (M&A) candidate ever since RK Damani started buying stake in the company from Q2FY20. Though UltraTech’s bid for an eventual controlling stake (if at all) may take time to fructify (and also remains uncertain), the deal to acquire around 23 per cent stake from the investor certainly thwarts competition from making a bid for ICL, analysts at ICICI Securities had said in UltraTech update.

While the deal value of ~$91/t appears fair (being broadly in line with recent deals in South India – being ~$90/t bid by Ambuja Cement for Penna Cement and ~$100/t bid for Kesoram Industries by UltraTech), value for future stake purchase too remains uncertain (leave alone the potential fund infusion required to spruce the assets at par to UltraTech’s operating standards), the brokerage firm said.