Across the country, infrastructure has been growing at a rapid pace. Over the last two years, the residential real estate market too has seen a strong rebound in major markets. One sector that is a big beneficiary of this growth is cement, and companies are augmenting their capacities through acquisitions as well as organic expansion.
The Adani Group-owned Ambuja Cement is acquiring Penna Cement Industries (PCIL) at an enterprise value of Rs 10,422 crore. Ambuja will acquire 100 per cent of Penna Cement from its existing promoter group P. Pratap Reddy and family.
By acquiring PCIL, Ambuja is set to expand its market presence in south India and reinforce its position as a pan-India leader in the cement industry, said Ajay Kapur, CEO, Ambuja Cement. Penna's strategic location and sufficient limestone reserves provide an opportunity to increase cement capacity through de-bottlenecking and additional investment, he said.
"Importantly, the bulk cement terminals will prove to be a gamechanger by giving access to the eastern and southern parts of peninsular India, apart from an entry to Sri Lanka, through the sea route," according to Kapur.
PCIL has 14 MTPA cement capacity, of which 10 MTPA is operational, and the remaining is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and will be completed within 6 to 12 months. Further, around 90 per cent of the cement capacity comes with railway sidings, and some are supported by captive power plants and waste heat recovery systems.
"Ambuja’s pan-India capacity market share stands at 13-14 per cent as of FY2024, with share in the southern market being the lowest at 5-6 per cent. The said acquisition would solidify its presence in the highly fragmented, fast-growing southern markets such as Andhra Pradesh/Telangana, where it has a limited presence currently," said Dharmesh Shah of Emkay Global Financial Services.
The acquisition would help the company improve its market share in the south by 700-800 basis points and, resultantly, achieve a strong positioning, he added.
The Gautam Adani-led diversified Adani Group had acquired Switzerland-based Holcim's stake in Ambuja and ACC back in 2022 to become the second-largest cement player in the country.
"With PCIL acquisition, Ambuja Cement has reached 89 MTPA mark and on track to reach 140 MTPA by FY2028," said Tushar Chaudhari, research analyst at Prabhudas Lilladher.
Considering 14 MTPA capacity and unspent capex of Rs 1,600 crore, the enterprise value per tonne works out at lucrative $76 per tonne, he added.
Aditya Birla Group-owned Ultratech Cement has been the largest cement player in the country. In April, Ultratech had acquired a grinding unit from rival India Cements in Maharashtra for Rs 315 crore. Earlier in March, the Competition Commission of India had approved Ultratech's acquisition of the cement business of Kesoram Industries. Ultratech has set targets to reach a production capacity of 200 MTPA.
Chaudhari expects the cement industry demand to improve gradually to 9-10 per cent on the back of a thriving domestic economy.
According to credit ratings agency CRISIL, in the last five years, India's cement industry added 119 MTPA capacity to reach a total of 595 MTPA. The sector will add 150-160 MTPA capacity in the next five years, through organic as well as inorganic routes, with an eye on anticipated demand growth in infrastructure and housing, and in a bid to capture market share in a highly fragmented industry, it said in a report earlier this year.
"Robust demand in the past two fiscals has bolstered the balance sheets of large players and some mid-sized ones with strong market presence, prompting them to expand capacity on the back of healthy cash accrual and credit profile," CRISIL had said.
Following the acquisition, shares of Ambuja Cement hit a life high of Rs 690 in intra-day trading on Friday. In late afternoon trading, the stock was trading at Rs 677, up close to 2 per cent on the BSE.
