UltraTech Cement will catapult to match the largest cement producer in the northern region comprising Rajasthan, Punjab and Haryana after the long court-driven acquisition of Binani Cement. Post the deal, the installed capacity of UltraTech will increase to 24 million tonnes per annum (mtpa), similar to that of Shree Cement.
Production capacity share of UltraTech in the northern region will increase to 24 per cent from 17 per cent. Ultratech and Shree Cement will account for 45 per cent of total installed capacity in the region.
Lafarge-Holcim owned Ambuja Cements will be the third largest producer in the North with 10 million tonnes, followed by JK Lakshmi and JK Cement with 7.5 million tonnes each.
Brand Binani
The top five players will together account for 70 per cent of the total installed capacity, implying strong market consolidation in the northern region, said Rajesh Kumar Ravi, Research Analyst, Centrum Broking.
He said Binani Cement delivered an Ebitda per tonne of ₹700 between FY10 and FY13 before high debt gearing and costlier working capital dragged down its utilisation and profitability, finally leading to insolvency.
With a strong brand recall and quality output, UltraTech should put back Binani Cement to generate an Ebitda of ₹700-800 a tonne level sooner than later.
Overall, Binani Cement has a global manufacturing capacity of 11.25 mtpa with a domestic capacity of 6.25 mtpa and an integrated plant in China and grinding units in Dubai.
Acquisition of Binani will also add about 2 mtpa capacity to UltraTech in Gujarat, thereby strengthening its leadership position with production capacity of 40 per cent in the State.
Price stability
Binani Cement was operating the Gujarat plant at 30-40 per cent capacity utilisation and incremental volume from capacity ramp up will boost market consolidation leading to price stability in both the northern and Gujarat markets.
The overall demand in the North and Gujarat is estimated at 75 mtpa.
On the other hand, Ravi said if Dalmia Bharat were to acquire Binani Cement, the influx of a new brand would have led to volatility in price as Dalmia is not present in the northern markets.
While losing the race for Binani Cement may delay Dalmia’s aspiration to become a pan-India player, it can focus on its large on-going expansions in the East to strengthen its position with a better balance sheet.