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UltraTech Cement certainly took the lead in the Indian cement industry by acquiring Jaypee Cement Corporation's Gujarat Cement unit for Rs 3,800 crore, in September 2013.
As per the deal, Aditya Birla Group’s UltraTech will take over the Rs 3,650 crore loan of Jaypee's Gujarat unit and additionally will issue Rs 150 crore worth shares to Jaiprakash Associates once the deal is completed. Jaypee Cement Corporation is a wholly owned subsidiary of Jaiprakash Associates.
The deal, which is to be completed in nine months, will take place by way of a demerger, comprising an integrated cement unit at Sewagram and a grinding unit at Wanakbori.
UltraTech Cement will acquire both the divisions of the Gujarat unit with a combined capacity of 4.8 million tpa of cement, a 57.5 MW coal-based thermal power plant, limestone reserves for over 90 years at current capacity, and a captive Jetty at Sewagram.
By acquiring Jaypee Cement’s Gujarat units, UltraTech Cement will increase its capacity from the current 54 million tonne to 59 million tonne. On completion of the ongoing expansion plans by 2016, UltraTech's total capacity is projected to reach 70 million tonne.
With this deal, UltraTech has moved ahead of its closest competitor, Switzerland's Holcim Group, to become India's leading cement manufacturer. ACC and Ambuja cement, both owned by Holcim Group, have a combined capacity of 57 million tonne. They plan to add eight million tonne by 2015 and take its total capacity to 65 million tonne. Holcim Group is followed by Jaiprakash Associates, which, even after the divestment, will own a total capacity of 32.8 million tonne.
With this acquisition, UltraTech expects to regain its lost market share in Gujarat following the sale of Shree Digvijay Cement in 2008. The deal will also boost UltraTech's coastal foot print and will also aid in meeting the cement demand from the West. Currently, UltraTech's three units in Gujarat have a total capacity of 7.6 million tpa and utilisation of around 90 per cent.
As for upcoming projects, UltraTech proposes to set up a three million tpa cement unit at Jhunjhunun district in Rajasthan and expand the capacity of its Neemuch unit in Madhya Pradesh. The project envisages a capacity addition of 6.33 million tpa, taking the total capacity of the cement unit to 10 million tpa.
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Top-5 Cement Projects in India |
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Promoter
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Project Name
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Cost(Rs.Crore)
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Bhushan Steel |
Cement (Damoh) |
4,000
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J K United Cements |
Cement (Surgani) |
4,200
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ABG Cement |
Cement (Katni) |
3,200
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Reliance Cement |
Cement (Hosudurga) |
2,500
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ACC |
Integrated Cement (Masturi) |
3,000
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At present, the Indian cement industry is facing a sharp fall in capacity utilisation, which has dropped to around 60-70 percent from the traditionally observed 90+ per cent. Lackluster demand from the construction industry has forced many cement units to cut down the production.
As of August 2013, India had an installed cement producing capacity of 350 million tpa. The 12th Five Year Plan states that this capacity has to reach 480 million tpa by 2017.
This excess capacity, coupled with lower demand, has put significant pressure on pricing in the cement industry, which has a direct effect on sales and profits. Thus with the forecast of prices remaining low due to overcapacity and low demand, ProjectsToday expects major cement players, looking at smaller players, as easy prey for takeover.
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