On Thursday, Ambuja Cement signed an agreement to acquire Penna Cement for Rs 10,422 crore, a move that will help it add another 14 MTPA of production capacity.
According to Elara Capital, after the capacity addition by Penna Cement, Ambuja Cement would gain access to an additional 3 million tonne of clinker and 4 million tonne of cement capacity. (Reuters)
Ambuja Cement’s acquisition of Penna Cement Industries would help Adani Group surpass its 140 million tonne per annum (MTPA) by 2028 production capacity target “easily” as it would pursue both organic and inorganic routes, analysts have said. On Thursday, Ambuja Cement signed an agreement to acquire Penna Cement for Rs 10,422 crore, a move that will help it add another 14 MTPA of production capacity.The deal will help Adani Cement — the holding company of ACC and Ambuja Cement — increase capacity to 89 MTPA, even though it does not upset the present industry pecking order.On Friday, Ambuja Cements’ shares touched a 52-week high of `690 on Friday, and ended up 1.90% at `676.95. Shares of its subsidiary ACC closed up 0.66% at `2,652. According to a report by Centrum, the group will exceed the 140 MTPA capacity target. “Work is ongoing for 20 MTPA of grinding capacity and 10.4 MTPA of clinker capacity.
The rest, 40 MTPA of cement capacity is still under planning. However, with possibility of addition of another 20-25 MTPA of capacity through inorganic route, we expect the company to surpass this target easily,” it said.Ambuja has a strong balance sheet with asset base of `65,300 crore, including cash of `24,300 crore as of March. It has a “healthy” operating cash flow of `8,000-10,000 crore every year and significant ability to leverage the balance sheet.
A report by Nuvama echoed this. “We believe further acquisitions are indeed possible considering Ambuja Cement’s strong balance sheet”. “While Penna Cement has been facing liquidity issues, a potential turnaround (similar to Sanghi acquisition) can enhance the value of Ambuja Cement. At the same time, utilisation ramp-up at Penna Cement (39% in FY23) would bring in additional volumes to the market and intensify competition,” it added.According to Elara Capital, after the capacity addition by Penna Cement, Ambuja Cement would gain access to an additional 3 million tonne of clinker and 4 million tonne of cement capacity. This would take its clinker and cement capacity to 10.3 million tonne and 14 million tonne.Penna Cement is currently adding greenfield capacity (3 million tonne clinker and 2 million tonnes cement) at Jodhpur in Rajasthan. Given the surplus clinker capacity in North India, Ambuja Cement can expand grinding capacity further by 2.5 million tonne.In a presentation, Ambuja Cement said the deal would help it increase market share in south India by 8-15% and that of pan-India by 2%. The deal would also provide an entry to the Sri Lankan market.
