Ultratech Cement said it has purchased of a 32.72% stake in India Cements for ₹3,954 crore. The transaction will trigger an open offer for an additional 26% stake in the company.

What Happened: Ultratech Cement’s board approved the purchase of 32.72% stake in the company on Sunday, buying shares at an average price of ₹390 per share.

The purchase has taken the total stake of Ultratech in India Cements to 55.49% as the company had picked up 22.77% stake in India Cements in June. The promoters of India Cements approached Ultratech after the financial transaction in June to sell their holding in the company, Ultratech said in a regulatory filing said.

The acquisition will trigger an open offer which will be completed in the next six months.

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India Cements has a total capacity of 14.45 million tonnes per annum of grey cement. Of this, 12.95 million tonnes per annum is in the South (particularly Tamil Nadu) and 1.5 million tonnes per annum is in Rajasthan.

Ultratech said the acquisition will help the company to extend its footprint in the highly competitive, fragmented and fast-growing market of South India.

The transaction is also subject to the approval of the Competition Commission of India.

Brokerage Views: Motilal Oswal maintained “buy” call with a target price of ₹13,000, saying that the acquisition will strengthen the company’s presence in the South. The company is balancing out its pan-India presence through organic and inorganic expansions, the brokerage said.

Kotak Institutional Equities also sees the acquisition as adding value to Ultratech as it would help the firm improve its presence in the lucrative markets of Tamil Nadu and Kerala and significantly ramp up its limestone reserves in these markets, which could help in expansion.

However, the research firm maintained “sell” call with a target price of ₹7,000 as it expects prices and margins to be under pressure in the near term due to higher utilisation of these assets.

Price Action: Shares of Ultratech Cement were up 0.53% to ₹11,735 on Monday morning.

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