UltraTech Cement's ₹5,477 crore expansion plan is a sign that Birla is betting on a faster economic recovery

UltraTech Cement's ₹5,477 crore expansion plan is a sign that Birla is betting on a faster economic recovery
UltraTech Cement makes fresh investment to expand its production capacity in IndiaBCCL
  • UltraTech Cement has announced a ₹5,477 crore expansion plan that will add 12.8 million tonnes to its annual capacity.
  • The move comes after Aditya Birla Group chairman and billionaire Kumar Mangalam Birla expressed confidence in the cement sector during his only media interaction of 2020.
  • UltraTech Cement is already the largest cement company in India and the third-largest globally. Its expansion plans will further increase its annual capacity by 10.4% to hit 136.25 million tonnes per annum.
The demand for cement is on the road to recovery as migrants who have returned to their home towns and villages settle in for the long haul. One of the biggest beneficiaries of this shift has been India’s biggest cement company and the Aditya Birla Group’s flagship, UltraTech Cement.

Now, it’s doubling down on this with a greenfield investment of ₹5,477 core to increase its annual production of cement by 12.8 million tonnes. That's 10.4% more cement than it currently produces.

The massive investment plan is in sync with the confidence Aditya Birla Group Chairman Kumar Mangalam Birla displayed in a recent interview ⁠— his only media interaction this year⁠— with Business Insider.

“There was a big question around what would happen to infrastructure spending. If I just see aluminium and cement businesses, they’ve both come back to pre-COVID levels very quickly."

Kumar Mangalam Birla at the BI Global Trends Festival 2020 in October

Edelweiss Research pointed out in a report dated December 2 that while demand for cement has certainly returned, it’s not quite at pre-COVID levels yet. Meanwhile, the stock of Ultratech has rallied over 55% in the last seven months.

UltraTech Cement's ₹5,477 crore expansion plan is a sign that Birla is betting on a faster economic recovery
Ultratech Cement's share price since April 2020 amid the nationwide lockdown to counter the spread of the coronvirus pandemicBSE/BI india

Birla is doubling down on cement while economic indicators are sluggish
UltraTech Cement already commands 25% of the industry capacity. Once this latest round of expansion is complete, overall capacity of the company will be at 136.25 million tonnes per annum — continuing to remain the biggest cement producer in India and the third-largest globally.

This expansion includes the previously approved cement plant at Pali in Rajasthan with the capacity to produce 6.1 million tonnes per annum. The rest of the 6.7 million tonnes of annual production capacity comprises additions to plants in Uttar Pradesh, Odisha, Bihar and West Bengal.

RegionCapacity expansion
East India10.2 million tonnes
Central India5.1 million tonnes
North India2.5 million tonnes
West India1.8 million tonnes
Source: Elara Securities

“We believe improving industry fundamentals and capacity addition primarily in demand accretive East, Central and North India augur well for the company to achieve sustainable growth,” said Elara Securities in its report dated December 3.

Before the financial year ends, analysts expect a 12% decline in profitability even though volumes will expand for the cement sector.

“In terms of more — we’ve always been on the lookout for value-creating investments. Whether they be greenfield or brownfield or inorganic. We’ve made more than 40 acquisitions over the last two and a half decades. Most of them have worked very well and served the purpose for which the acquisition was made,” said Birla.

“So I think it’s about looking out for opportunities. First of all, they must fill a strategic gap. And, they must be value-creating,” he added.

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