Adani Group plans to spend $3 billion to acquire cement companies and become a leader in the sector. Ambuja Cement is buying Penna Cement for Rs 10,400 crore, aiming to boost its market share and capacity. Analysts predict growth, but some caution about potential medium-term challenges. If you like this content please check out Training topic section
Adani Group’s Plans
- Goal: Adani Group wants to buy cement companies to become a big leader in the cement business in 3-4 years.
- Budget: They have $3 billion to spend on these purchases.
- Possible Targets:
- Saurashtra Cement
- Vadraj Cement
- Jaiprakash Associates’ cement business
Ambuja Cement’s Performance and Moves
- Broker Recommendations:
- Nuvama: ‘Buy’ rating, target price Rs 767
- Jefferies: ‘Buy’ rating, target price Rs 735
- Emkay Global: Predicts market share improvement
- Stock Performance:
- Record high: Rs 690 on June 14, BSE
- Closing price: Rs 677 (up 1.9%), BSE Sensex index rise: 0.24%
Buying Penna Cement
- Deal: Ambuja Cement is buying Penna Cement.
- Price: Rs 10,400 crore (mostly paid with their own money).
- Timeline: The deal will finish in 3-4 months if approved by regulators.
Penna Cement’s Production Capacity
- Current Capacity: 10 million tonnes (mt)
- Andhra Pradesh and Telangana: 90%
- Maharashtra: 10%
- Clinker Capacity: 7.3 mt
- Future Capacity:
- Grinding: 4 mt
- Clinker: 3 mt (Jodhpur, Rajasthan)
- Ready in 6-12 months
Market Impact
- Market Share Increase:
- Nationwide: 13-14%
- South India: 5-6%
- After buying Penna: Increase by 700-800 basis points in South
- Overall: Increase by 200-250 basis points by FY27
- Top Players: Ambuja will be one of the top-three cement companies in Southern India.
Future Growth Plans
- Long-term Goal: Reach 140 million tonnes per year by FY28 (now: 78.9 mtpa)
- Current Projects:
- Target: 100 mtpa by FY26
- Expansion: 20 mtpa in different regions
- Approved Projects: 2.25 mtpa clinker unit (Mundra, Gujarat), 17 grinding units (2.4 mtpa each)
Financial Performance
- Sales Volumes: 59.2 mt in FY24 (8% more than last year)
- Capacity Utilisation: 82% in FY24 (up from 81% in FY23)
- Capital Expenditure: Rs 2,000 crore in FY24 (down from Rs 2,100 crore in FY23)
- Analysts’ Outlook:
- The acquisition helps Ambuja move towards its goal of 140 mt capacity by CY28.
- Strengthens position in India.
- Possible medium-term margin dilution due to initial issues and regional mix.
- Return ratios may be similar to cash yield, potentially EPS-neutral.
- Elara Capital: ‘Accumulate’ rating, target price Rs 655.
Key Data Table
| Category | Details |
|---|---|
| Adani Group’s Plans | $3 billion for acquisitions (Saurashtra, Vadraj, Jaiprakash Associates) |
| Ambuja Cement Ratings | Nuvama: ‘Buy’ (Rs 767), Jefferies: ‘Buy’ (Rs 735) |
| Stock Performance | High: Rs 690, Closing: Rs 677, BSE Sensex rise: 0.24% |
| Penna Cement Deal | Price: Rs 10,400 crore, Funded: Internal money, Timeline: 3-4 months |
| Penna Capacity | Current: 10 mt (AP, Telangana, Maharashtra), Clinker: 7.3 mt |
| Upcoming Capacity | Grinding: 4 mt, Clinker: 3 mt (Jodhpur), Ready: 6-12 months |
| Market Share Impact | Nationwide: 13-14%, South: 5-6%, Post-acquisition: +700-800 bps in South, +200-250 bps overall |
| Top Players | Ambuja to be top-three in Southern market |
| Expansion Plans | Goal: 140 mtpa by FY28, Current: 20 mtpa, Approved: 2.25 mtpa clinker, 17 grinding units |
| Sales & Utilisation | Sales: 59.2 mt (8% Y-o-Y), Utilisation: 82% (FY24) |
| Capital Expenditure | FY24: Rs 2,000 crore, FY23: Rs 2,100 crore |
| Analysts’ Outlook | EPS-neutral, Accumulate rating (Rs 655), potential medium-term margin dilution |
News Source – Rediff.com