Bernstein is reviewing possible acquisition targets for Investing.com

Investing.com — Bernstein analysts in a note on Monday looked at the ongoing battle for dominance in India’s cement industry, with a focus on potential acquisition targets.

Like the fight between Ambuja (NS:) and UltraTech cement (NS:) steps up, the note assessed which companies could be attractive options for acquisition.

The note signals geographic synergy as a crucial factor for acquisitions. “We can see clear white spaces where Ambuja has no presence and which are complimented if they acquire players like Heidelberg/ Sagar/ KCP/ NCL / Deccan,” analysts said.

These companies are located near Amravati, an area expected for development with government support.

Beyond geographic considerations, Bernstein suggests that financially stressed companies could be prime candidates for acquisitions.

Players with high leverage (through debt or pledged shares), low sales performance and low capacity utilization are seen as more likely to be bought.

In this context, Sagar Cements ( NS: ) stands out as a potential target, with factors such as high debt and low profitability making it a good fit for a larger brand looking for operational synergies.

The note also emphasizes valuation as a significant factor. Bernstein suggests that companies trading below the estimated cost of setting up a new greenfield plant (around $100 per tonne) could be attractive options.

Based on this value, Sagar Cement, NCL and Deccan emerge as the cheapest options in the market.

Bernstein acknowledges the possibility of Heidelberg exiting the Indian market, citing their history of divesting cement assets globally. This could create additional acquisition opportunities for other players in the sector.

The note expresses concern about oversupply and price wars affecting valuations. Given the high valuations and larger players’ willingness to pay buyout premiums, Bernstein suggests investors might consider focusing on potential targets rather than established players.

The report offers price targets for Ultratech Cement (INR 9,006), Ambuja cements (Rs. 520 crore) and Shree Cement (Rs. 27,541 crore), derived from estimated future earnings.

Bernstein also identifies potential risks including demand volatility, margin compression and regulatory uncertainties.