UltraTech eyeing Volume expansion in south, unlikely to disturb prices

With the Kesoram Industries deal, UltraTech Cement will enter a new state and increase its presence in South India. This, cement analysts say, is unlikely to disrupt price discipline. Volume expansion, however, is on the cards, they added.

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 tonnes 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 capacity under UltraTech Cement’s fold – two integrated cement units at Sedam (Karnataka) and Basantnagar (Telangana). The deal also marks UltraTech’s entry into the Telangana market.

“Kesoram’s asset is currently at 65 per cent capacity utilization, and UltraTech is expected to improve the utilization by taking advantage of its pan-India presence. In spite of 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 also include a 0.66 MTPA packing plant in Solapur, Maharashtra.

The South India market is peculiar for 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 used to indicate the absence of price wars, usually through cuts.

Vincent KA from Geojit added, “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.”

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.

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