UltraTech-Kesoram deal benefits both the company and industry, say analysts

Analysts tracking UltraTech Cement Ltd., India's largest cement maker believe that the acquisition is positive for both the companies.

On Thursday, UltraTech announced the acquisition of Kesoram's cement assets, confirming a CNBC-TV18 newsbreak from November 24.

In lieu of this, UltraTech will issue one equity share for every 52 shares of Kesoram. The deal values Kesoram at a 24.5% premium compared to its closing price on Thursday and at an enterprise value of ₹7,500 crore.

Brokerage firm Morgan Stanley said that the move is incrementally positive for the industry as it reduces the risk of excess organic supply in the medium-term.

It also said that the deal is positive for UltraTech, given its increased footprint in the south and should help drive economies on scale and therefore potential operating synergies.

Morgan Stanley is Overweight on UltraTech with a price target of ₹9,300.

CLSA believes that this acquisition, along with UltraTech's ongoing organic expansion, will take the company's total capacity to 192 MT in the next four years, bringing it a step closer to its stated goal of 200 MT capacity by financial year 2028.

The brokerage has an outperform rating on UltraTech with a price target of ₹9,450.

Goldman Sachs believes that the proposed transaction would expose UltraTech to 10.75 million tonnes of cement capacity, taking its current capacity to 149 MT, and help it move closer to its 200 MT target.

"With its strong track record of turning around profitability of its past acquisition like JP Associates and Binani, similar actions for Kesoram's assets will be key to watch out for," the note said.

InCred believes that the deal is structurally positive from a long-term perspective as the company has a track record of turning around businesses to its standard.

It will also help expand its footprint in the southern market, where it has a relatively lower market share.

InCred has an "Add" rating on UltraTech and a price target of ₹9,500.

Out of the 44 analysts that track UltraTech, 33 continue to have a "buy" rating on the stock, nine say "hold," while two have a sell rating.

Shares of UltraTech Cement have gained 0.3% on Friday to trade at ₹9,029. On the other hand, shares of Kesoram Industries are locked in an upper circuit of 5% at ₹146.35.