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India's largest cement company announced that its Board had approved an investment plan of Rs 12,886 crores to tackle the improved competition in the sector.
Recently, UltraTech lost the bid to purchase Holcim's Indian assets to the Adani Group, which became the second-largest cement manufacturer in India after the acquisition. Considering the increase in competition, the Board of the cement manufacturer has given their consent to invest Rs 12,886 crores to increase production by 22.6 MTPA, a mix of brownfield and greenfield expansion.
This stock gave 5400% profit in an year, read more.
The expansion will be undertaken at a cost of $76 per tonne of cement and will be funded via a mix of debt and internal accruals & will cater to the company's future growth.
“This ambitious capacity expansion plan is a significant milestone in the ongoing transformational growth journey of UltraTech,” said Kumar Mangalam Birla, chairman of Aditya Birla Group.
The expansion plans could be viewed negatively since it could result in margin erosion in a company that is severely affected by high fuel costs, weak demand, and lower performance in recent times. Moreover, combined with the introduction of a new competitor in the form of Adani may add pressure on cement stocks in the near future and greater competition.
The announcement shook all relevant cement stocks today. Its closest competitors Ambuja and ACC declined by over 1% and 3% respectively. Other cement stocks faced a decline as well: Shree Cements fell by almost 5%, Ramco Cements and Dalmia by over 7%, JK Cements by almost 7% & India Cements by over 4%.
Major brokerages have placed a "Buy" rating for the UltraTech stock which has fallen over 5% till now in today's trading session and currently trades around Rs 5,670.75 per share.
Article by Aman Agarwal.
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