ultratech: How should investors react to UltraTech-India Cements deal? explains Rakesh Arora

“Though I’m a bit surprised by this deal, given that this isn’t UltraTech’s style. Normally they go for a majority and full consolidation. So we have to wait and see who the seller is. If the seller is a shareholder big in that India Cements is probably an exit for him. But we need more details to figure out why this happened,” says Rakesh Arora, founder of Go India Stocks.
UltraTech eventually bought 23% of India Cements, although they still call it a financial investment. What do you think about this business and do you see more happening? Something about radar, prospect, buy candidates?
Rakesh Arora: You see, both Adani and UltraTech have been trying to gain market share and thus consolidation in the cement industry has been a continuous process now.
Especially in South India, there was a lot of stress. And due to overcapacity, cement prices were also not remunerative enough, so companies like India Cements were making losses. So it’s only a matter of time before these guys get bolstered by the bigger players.

Although I’m a little surprised by this offering considering this isn’t UltraTech’s style. They normally go for a full majority and consolidation. So we have to wait and see who the seller is. If the seller is a big shareholder of India Cements, then it is probably an exit for him. But we have to wait and see. We need more details to really figure out why this happened.

In fact I think Radhakishan Damani was a big keeper if he had sold out. It will be interesting to see. But I want to talk about Grasim, Shree Cement, some of the big ones, Dalmias and of course Ambuja, ACC. Which side do you find more comfort in strategy and numbers?
Rakesh Arora: See, UltraTech is undoubtedly number one and they are a well oiled machine. Not only are they the largest, but they continue to grow at one of the fastest rates in the industry, have good cost efficiency, etc.
So UltraTech is number one by far. And obviously Adanis is trying through Ambuja and ACC and they have made two very good acquisitions, Sanghi and Penna Cement, which really fits into their plan to be the lowest cost producer. So UltraTech is number one by far and Ambuja and ACC are a little bit number two.

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