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One share of Ultratech buying and selling on November 30 at ₹9,000 per share in trade for 52 shares of Kesoram buying and selling at ₹139 per share implies a 24 per cent premium to Kesoram shareholders. The share swap ratio would indicate an EV of ₹7,100 crore for the transaction that features roughly ₹5,300 crore fairness and remaining for web debt. This interprets to transaction a number of of $80 EV/ton which compares pretty with current transactions of the identical capability.
Given the capability addition in most well-liked markets, the truthful valuation of the property and the acquisition observe report of Ultratech, we anticipate the deal to be worth accretive in the long term for Ultratech.
Formidable targets and inorganic mode
Ultratech has an bold goal to achieve a capability of 200 MTPA of gray cement capability within the nation. At present, the corporate commissioned 12 MTPA capability final yr to achieve 137 MTPA cement capability in Sep-23. The corporate plans so as to add 28 MTPA by phase-2 of the plan in 2025 and 187 MTPA by 2027 with phase-3 completion. That suggests a quantity progress estimate of low double digits for the following 4 years if executed. With the addition of 10.7 MTPA capability with the present deal, Ultratech has made a powerful begin to its capability growth plans.
Ultratech has a powerful acquisition historical past in its capability constructing. Greater than half of its present capability has been by way of inorganic mode. Within the final six years, the corporate has added 21 MTPA from Jaypee Cements ($110 EV/ton in Jul-2016), 6.2 MTPA from Binani ($140 EV/ton in Nov-2018) and consolidated 14.6 MTPA from Century Textiles ($95 EV/ton in Might-2018). As well as, it added shut to twenty MTPA from natural growth within the interval.
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That the corporate has carried out nicely from the acquisitions is obvious from the $230 EV/ton the inventory trades at presently. The Kesoram acquisition is anticipated to be no totally different.
Deal metrics and outlook
The relative valuation for cement acquisitions within the final decade has ranged from $40-50 EV/ton for small or unprofitable cement corporations with 1-3 MTPA capability, $100-120 EV/ton for many different transactions and 150 EV/ton for Adani’s acquisition of Ambuja and ACC. This suggests that the $80 EV/ton for 10.75 MTPA capability Kesoram cements compares comparatively nicely to the trade metrics.
Ultratech being the biggest firm has a powerful presence in North (23 per cent market share as Sep-23), central (34 per cent), and Western elements (37 per cent). South being the biggest market within the nation, Ultratech has solely a 11 per cent market share. With each the crops being acquired from Kesoram positioned in South (Telangana and Karnataka), Ultratech can plug the hole in Southern market share as nicely. The corporate can doubtlessly deal with 25 per cent of nation’s demand within the subsequent few years.
The home cement market is anticipated to profit from robust demand progress and higher margins. With an bold infrastructure plan in place and rebound in home housing, trade expects robust demand progress within the subsequent 5 years. As energy and gasoline prices deflate from their highs within the final two years, manufacturing and logistics prices ought to support margin progress. Owing to a powerful progress outlook, the trade has been consolidating in the previous couple of years. Based on broader expectations, one other 60 MTPA capability within the nation could also be consolidated in subsequent one-two years by main gamers.
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