Ambuja Cements’ share price surged over 3% to reach a 52-week high in early trade on Friday following the announcement of its acquisition of Penna Cement Industries Ltd (PCIL) by the Adani Group firm. The shares rallied as much as 3.86% to a new high of ₹690.00 apiece on the BSE.
Ambuja Cements will acquire 100% of PCIL shares from the existing promoter group, Pratap Reddy and family. The acquisition, valued at Rs 10,422 crore, will be fully funded through internal accruals, according to a regulatory filing by the Adani Group cement manufacturer on Thursday.
PCIL has a total cement capacity of 14 million tonnes per annum (MTPA), with 10 MTPA currently operational. The remaining capacity is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA), expected to be completed within 6 to 12 months. Additionally, surplus clinker at the Jodhpur plant will support an extra 3 MTPA cement grinding capacity beyond the existing 14 MTPA.
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Analysts believe that securing a foothold in the southern market aligns well with Ambuja Cements’ growth ambitions and consider the deal to be value accretive. They have maintained a bullish outlook on Ambuja Cements shares following the acquisition.
Brokerages on Ambuja Cement
Motilal Oswal On Ambuja Cement
Motilal Oswal maintains a Neutral rating for Ambuja Cement with a target price of Rs 640, based on 16x FY26E EV/EBITDA. The report also said that Ambuja cement stock is currently trading at 19x/16x FY25E/FY26E EV/EBITDA
Motilal Oswal highlighted several strategic initiatives by Ambuja Cement aimed at cost reduction. The company is increasing its share of green power and alternative fuels and raw materials (AFR), engaging in long-term procurement strategies for critical raw materials, and optimizing logistics. Successful execution of these plans could result in positive outcomes for the company.
Ambuja Cement has reiterated its capacity target of 140 million tonnes per annum (mtpa) by FY28, with work progressing at various stages. Despite these ambitious growth plans, the company has so far placed orders for only two kilns, which together have an aggregate production capacity of 8 mtpa.
CLSA On Ambuja Cement
CLSA maintains a sell rating on Ambuja Cement with a target price of Rs 575. The report highlights Ambuja Cement’s acquisition of Penna Cements for Rs 10,400 crore.
On the valuation side the report says that Penna Cements has an operational capacity of 10 million tonnes (mt) and an additional 4 mt capacity under construction. CLSA calculates the valuation of the deal at $103 per tonne, compared to the replacement cost of $90-110 per tonne.
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CLSA says that this acquisition would increase Ambuja Cement’s total capacity to 91 mt, aligning with its target of 140 mt by FY28. The report also notes that inorganic expansion has a lower adverse impact on the industry’s demand-supply chain.
Macquarie on Ambuja Cement
Macquarie has maintained a neutral rating on Ambuja Cement with a target price of Rs 608 per share. The report highlights Ambuja Cement’s expanded regional footprint in South India, noting an improvement in its capacity share from the current 4-5% to 10-11%.
The deal value, ranging from $90-100 per tonne, is higher relative to the organic expansion cost for Ambuja Cement and its peers but aligns with recent acquisitions in the sector.
Macquarie emphasizes the importance of tracking whether this acquisition will help Ambuja Cement achieve its capacity target of 140 million tonnes by FY28.
Additionally, it will be crucial to monitor if the company recalibrates its organic expansion plans following this acquisition.
(Disclaimer: Views, recommendations, and opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)
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