UltraTech Cement said on Thursday it will buy a 23% stake in rival India Cements for up to 18.85 billion rupees ($226 million), heating up a battle with the Adani group which is challenging its position as India's top cement maker.

Aditya Birla group-owned UltraTech had dominated the cement market in India, the world's second largest producer of the construction material, for decades until the Adani group's entry into the sector in 2022 and its quick rise through the ranks to become the second biggest player.

The deal, which Ultratech said is a non-controlling financial investment, comes as cement makers stand to benefit from Narendra Modi's return to power, which is expected to spur infrastructure spending in Asia's No. 3 economy.

UltraTech's stake deal for Chennai-based India Cements helps it retain a strong presence in the southern part of the country, as Adani firms are attempting to boost their hold in the region and narrow the gap with the market leader.

"It is becoming clearer that larger incumbents are vying for a slice of the pie in South India," said Ashutosh Murarka, a research analyst at Choice Broking.

"The stake deal intensifies the rivalry between UltraTech and its smaller peer Adani group across the country and definitely disadvantages regional peers," he added.

As of March, UltraTech had an 11% market share in the southern Indian cement market, after it bought Kesoram Industries' cement business for $645 million last year.

The Adani group also boosted its presence in the region earlier this month through a $1.25 billion deal to buy Penna Cement Industries.

The deal will help increase its market share in the region by 8%, it had said. An industry estimate put its share at 6% as of March 2024.

UltraTech said on Thursday it would buy 70.6 million India Cements shares for up to 267 rupees each, a 1.7% premium to the stock's closing price on Wednesday.

India Cements' shares jumped as much as 14% on Thursday to hit their highest levels since September 2022, while UltraTech's shares rose as much as 6.6% to touch a record high. ($1 = 83.5050 Indian rupees) (Reporting by Hritam Mukherjee in Bengaluru; Editing by Savio D'Souza and Muralikumar Anantharaman)