MOSL: ULTRATECH CEMENT (Buy)-Ultratech to acquire Century Textiles’ cement assets-Acquisition bodes well for Ultratech

Ultratech Cement: Ultratech to acquire Century Textiles’ cement assets; Acquisition bodes well for Ultratech

(UTCEM IN, Mkt Cap USD16.3b, CMP INR3852, TP INR4818, 25% Upside, Buy)

• Ultratech Cement's (UTCEM) board has approved the acquisition of cement assets of Century Textiles Industries (CTIL), which has total grinding capacity of 13.4mt (comprises 11.4mt of integrated capacity and a grinding unit of 2mt).
• The acquisition bodes well for UTCEM, as it will help the company to enhance its domestic capacity to 106mt and expand its capacity market share by ~3pp to 23% by end-FY19. We note that the acquisition cost of USD106/t is ~7-8% lower than the cost incurred to acquire JPA's assets about two years ago. Additionally, the acquisition is likely to be earnings accretive from the first year of operations versus two years in case of JPA's acquired assets.
• Importantly, the acquisition will ensure a higher market share with zero lead time for asset creation and at valuation largely in line with greenfield expansion.

 Event

• UTCEM’s board has approved the acquisition of the cement division of CTIL, which has grinding capacity of 13.4mt (~11.4mt of integrated capacity, and a grinding unit of 2mt in West Bengal).
• Post-acquisition, UTCEM’s domestic capacity will increase by ~15% to 106mt from 92.6mt, thereby increasing its capacity market share by 3pp from ~20% to 23% at end-FY19. Additionally, the acquisition is likely to fortify its capacity market share in the central, eastern and western regions.