In the fight with UltraTech, Adani’s ₹10,000 crore cement wager is expected to pay off, with gains in both Sri Lanka and India.
The ₹10,422 crore acquisition of Penna Cements, which was disclosed on Thursday, would cost the Adani Group. The cement manufacturer promised that internal accruals would cover the entire cost of the deal. As part of the deal, Ambuja Cement would purchase a 14 million tonne per year cement capacity as well as a 4.0 MTPA cement capacity that Penna Cement is currently building at Jodhpur IU and Krishnapatnam GU. The purchase of Penna Cement by the Adani Group’s Ambuja Cements is expected to result in a ₹10,000 crore debit to Gautam Adani’s $3 billion war chest, which was established to dominate the cement market.
The Adani Group will increase its presence in South India through Ambuja’s newest subsidiary as it attempts to challenge market leader Ultratech Cement. Furthermore, Adani’s position in the cement industry in Sri Lanka will increase as a result of this latest acquisition.
In a presentation outlining the rationale for the acquisition, the cement business stated, “Acquiring Penna Cement will increase Ambuja Cements’ presence in India, particularly in South India, besides making way to markets in neighboring Sri Lanka.”
The Adani Group announced earlier this week that it would set aside $3 billion for acquisitions in the cement industry. The group is actively pursuing an inorganic strategy to increase capacity and surpass the Aditya Birla Group’s UltraTech to become the largest cement manufacturer in the next three to four years.
The ₹10,422 crore acquisition of Penna Cements, which was disclosed on Thursday, would cost the Adani Group. The cement manufacturer promised that internal accruals would cover the entire cost of the deal.
As part of the deal, Ambuja Cement would purchase a 14 million tonne per year cement capacity as well as a 4.0 MTPA cement capacity that Penna Cement is currently building at Jodhpur IU and Krishnapatnam GU.
“Enterprise value includes the cost to complete the same,” Adani Cement stated when the transaction was announced.
With Penna Cement added, Ambuja Cements’ operational capacity increased to 89 MTPA, paving the way for the firm to reach 140 MPTA production by 2028.
In a year, the remaining four MPTA capacities that are now being built will be operational.
Furthermore, according to rumors, the Adani Group intends to purchase the cement businesses of Jaiprakash Associates and Vadraj Cement, owned by ABG Shipyard, as well as Saurashtra Cement, which is based in Gujarat and has an M-cap of ₹1,487 crore. Both companies are now facing bankruptcy.
India’s largest cement companies are placing bets on a spike in demand as the government of Prime Minister Modi, who is returning to office, moves forward with its plan for infrastructure development at a record-breaking capital expenditure.
Adani Cement plans to accelerate capacity with the acquisition of Penna. It also anticipates increasing its market share in south India by 8% to 15% and in the country as a whole by 2%.
The capacity of Saurashtra Cement is approximately five MTPA, whilst JP Associates and Vadraj Cement have capacities of 9.5 MTPA and six MTPA, respectively. If these businesses were successfully acquired, Ambuja’s current 89 MTPA of production capacity would increase by 20.5 MTPA, and in a year, four more MTPA are expected to be added.
Ultratech Cements, Adani’s rival, presently holds a 31% market share and a production capacity of 152.7 MTPA, with Ambuja coming in second with a 21% share.
With five bulk cement ports located in Kolkata, Gopalpur, Karaikal, Kochi, and Colombo to service peninsular India, Adani’s marine transportation logistics are further strengthened by the deal reached on Thursday between Ambuja and Penna.
In Friday’s early session on the BSE, Ambuja Cements gained 4% to reach a new all-time high of ₹690.
