Nevertheless, in Rajasthan, Shree Cement will continue to lead the market with 18 million tonnes per annum (mtpa) capacity while a successful takeover will boost UltraTech’s capacity to just over 14 mtpa. The latter’s total installed capacity in the northern region is 17.6 mtpa.
Furthermore, according to an analyst with Motilal Oswal, the takeover will also provide UltraTech the necessary means to double the current 6.25 mtpa of Binani Cement. This company, which is currently undergoing insolvency proceedings in the Kolkata bench of NCLT, has “considerable limestone reserves”, which can help the acquirer scale up operations considerably.
“Given the huge limestone reserves of Binani Cement, which will be transferred to the successful acquirer, there is a good chance of doubling the installed capacity”, an analyst with Motilal Oswal said.
This limestone reserve can also be routed to feed UltraTech’s current plants in Rajasthan. However, it has limestone reserves that can feed its existing capacity for over 35 years.
Sector analysts estimate that the acquisition cost of Binani’s assets, leaving aside its China and UAE plants, will be around $110-130 a tonne.
However, in case UltraTech is eventually able to acquire Binani Cement, its margins from the return on capial, is likely to hover around six per cent for the Binani plants as against its predominant margins of 10-11 per cent. On the contrary, Shree Cement, backed by greenfield and brownfield projects is estimated to register a 20 per cent margin on return on capital.
“However, it will be on a short-term and eventually margins on the capital employed may rise. Even then, it makes sense to acquire Binani Cement as it will make them the market leader”, the analyst with Motilal Oswal said.
UltraTech, however, did not respond to questions put forward.
According to analysts who track the cement sector, Binani Cement acquisition is strategic both for UltraTech as well as Dalmia Bharat.
In an earlier instance, while talking to Business Standard
, Dalmia Bharat CEO Mahendra Singhi said that acquisition of Binani plants will give it exposure to the entire north Indian market, including Gujarat, and will help the company emerge as a pan-India cement manufacturer.
Currently, its consolidated production capacity stands at 27 mtpa most of which is centred around east and south India. In contrast, UltraTech’s consolidated capacity currently stands at 92.5 mtpa that will increase to 105.9 mtpa once it completes the takeover of 13.4 mtpa cement business of Century Textiles and Industries.
Binani Cement has two kilns and four grinding mills at Binanigram, Pindwara, Sirohi and Sikar in Rajasthan.