Ambuja Cement shares jump 4% on deal to acquire Penna Cement

Shares of Ambuja Cement rose nearly 4% in opening trade on Friday, a day after the Adani group company signed a deal to acquire Hyderabad-based Penna Cement, promoted by P Prathap Reddy and family. Ambuja will acquire 100% stake in Penna Cement from its promoter group, Reddy and family, at an enterprise value of ₹10,422 crore, which will be “fully funded through internal accruals”. This is third major acquisition in the last one year after My Home Group's grinding unit in Tuticorin (Tamil Nadu) and Gujarat-based Sanghi Industries.

Cheering the news, Ambuja Cement shares opened higher at ₹689.95 after closing 0.63% lower at ₹668.50 on the BSE. In the early trade so far, the cement heavyweight gained as much as 3.86% to hit a 52-week high of ₹690, while the market capitalisation rose to ₹1.66 lakh crore.

The share price of Ambuja Cement touched its 52-week high of ₹680.20 in the previous session, rebounding over 68% from its 52-week low of ₹404 hit on November 1, 2023. In the last one year, the Adani group stock has risen 43%, while it surged 28% in six months and nearly 9% in a month.

Post the deal, Nuvama Institutional Equities has retained ‘Buy’ call on Ambuja Cement with a target price of ₹767, an upside potential of nearly 15% from the current market price.  The brokerage in its report says that the acquisition of PCIL will increase Adani’s market share by 2% pan-India and 8% in southern region. Furthermore, it will strengthen the group’s sea transportation logistics with five bulk terminals at Kolkata, Gopalpur, Karaikal, Kochi and Colombo (PCIL operates in Sri Lanka too directly and via its subsidiaries). The acquisition is expected to be completed in three–four months subject to required regulatory approvals, it says.

“This landmark acquisition is a significant step forward in Ambuja Cement’s accelerating growth journey,” said Ajay Kapur, CEO & Whole Time Director of Ambuja Cement.

Kapur further says that the acquisition of Penna Cement (PCIL), Ambuja is poised to expand its market presence in south India and reinforce its position as a pan-India leader in the cement industry. “PCIL’s strategic location and sufficient limestone reserves provide an opportunity to increase cement capacity through debottlenecking and additional investment. Importantly, the bulk cement terminals (BCTs) 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.”

“Our aim is to make PCIL highly competitive on cost and productivity and improve its operating performance,” he adds.

As per the company, PCIL has 14 million tonnes per annum (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. Around 90% of the cement capacity comes with railway sidings, and some are supported by captive power plants and waste heat recovery systems.

Earlier in April this year, Ambuja Cements, the cement and building material arm of Adani Group, inked a pact to acquire My Home Group's 1.5 MTPA cement grinding unit in Tuticorin, Tamil Nadu. As per the company, the estimated cost of the acquisition is ₹413.75 crore, which will be funded through internal accruals.

Besides in August last year, Ambuja Cements acquired Gujarat-based Sanghi Industries at an enterprise value of ₹5,000 crore.

As per media report, Adani Group is looking for several acquisitions in the cement sector as part of its strategies to become the largest cement manufacturer in India. This includes Gujarat’s Saurashtra Cement, Vadraj Cement owned by ABG Shipyard, and Jaiprakash Associates’ cement business, as per The Economic Times report.

Currently, Adani Cement, including Ambuja and its subsidiaries ACC and Sanghi Industries, is the country’s second-largest cement producer after Aditya Birla Group’s UltraTech Cement, with the group’s cement capacity of 78.9 MTPA and 18 integrated cement manufacturing plants as well as 19 cement grinding units across the country.

For the fourth quarter ended March 31, 2024, Ambuja Cement reported a 63.8% year-on-year increase in the consolidated net profit to ₹1,055 crore as against ₹644 crore in the same period last year. The revenue grew 11.6% to ₹8,893.99 crore, from ₹7,695.98 crore in the corresponding period of the previous fiscal year. The sales volume of Ambuja Cements improved by 17% to 16.6 million tonnes (MnT) compared to 14.1 MnT in the March quarter of FY23.

For full financial year FY24, the company’s consolidated net profit stood at ₹3,576.79 crore, up 38.4%, as against ₹2,583.40 crore in FY23. The revenue was at ₹33,160 crore, growing by 6.8% from ₹31,037 crore in FY23.

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