Ambuja Cements, owned by the Adani Group, has announced its acquisition of Penna Cement Industries, taking full ownership for an enterprise value of Rs 10,400 crore.
Ambuja Cements Ltd, which is part of the Adani Group, has announced it is acquiring a 100% stake in Penna Cement Industries (PCIL) for an enterprise value of Rs 10,400 crore. This acquisition includes PCIL’s cement grinding capacity of 14 million tonnes per annum (mtpa) clinker capacity of 10.3 mtpa. According to the brokerage firm, this deal is considered to be at a low valuation, making Ambuja Cement an appealing option for investment.
Systematix Institutional Equities considers this transaction, priced at $89 per tonne (assuming the enterprise value encompasses the completion of 4 mtpa), as beneficial in terms of value and more cost-effective than the recent purchase of Sanghi. Additionally, the excess clinker can facilitate an extra 3 mtpa of grinding capacity, which may be established at a cost of $30-35 million per tonne, making the deal even more appealing, according to the firm.
Ambuja Cement has excess clinker at its Jodhpur facility, enabling additional grinding capacity of 3 MT. According to Antique Stock Broking, the implied valuation for 17 MT of clinker-supported capacities would come to $85 per tonne, suggesting a potential value increase.
Following this announcement, Ambuja Cements shares rose by over 3.85 percent to Rs 690 during Friday’s trading session, resulting in a market capitalization exceeding Rs 1.70 lakh crore. The stock had previously closed at Rs 664.30 in the earlier session.
Despite PCIL’s liquidity challenges, a potential recovery similar to the Sanghi acquisition could increase the valuation for Ambuja Cements. Concurrently, ramping up utilisation at PCIL will contribute additional volumes to the market, thereby heightening competition, according to Nuvama Institutional Equities.
Market participants anticipate that this acquisition will be finalized within 3-4 months and fully financed through internal accruals. This acquisition will expand Adani Cement’s capacity from the current 79 MTPA to 89 MTPA, and eventually to 93 MTPA. This aligns with Adani Cement’s previously declared goal of achieving 140 MTPA by 2028.
Penna Cement has allocated 60 percent of its current production to Andhra Pradesh, 30 percent to Telangana, and the remaining 10 percent to Maharashtra. Industry specialists predict that this acquisition will bolster Ambuja Cement’s presence in the southern region, increasing their capacity share from the previous 10 percent to 20 percent.
“Nuvama, recommending a ‘buy’ rating, expressed their approval of Ambuja Cement due to its substantial capital expenditure plans and strategies to enhance cost efficiency. They set a target price Rs 767, based on an FY26E EV/Ebitda multiple of 18. This represents a potential upside of around 16 percent from the stock’s recent closing price.”
The acquisition will enhance Adani Cement’s maritime logistics, incorporating five bulk cement terminals located in Kolkata, Gopalpur, Karaikal, Kochi, and Colombo to effectively serve peninsular India. Systematix, maintaining a ‘hold’ rating and setting a target price of Rs 652, remarked that Penna’s strategic geographic presence and resources in clinker and limestone are expected to align well with Ambuja’s growth strategies.
“We have not yet included the transaction in our projections, as we are still waiting for regulatory approvals. We continue to recommend a ‘buy’ rating with an unchanged target price of Rs 700, based on a valuation of 17 times FY26 consolidated EV/Ebitda,” Antique stated in its recent report.
Ambuja Cement is aiming to reduce costs further by increasing the proportion of green energy and alternative fuels raw materials (AFR), implementing long-term strategies for securing essential raw materials, and improving logistics. Motilal Oswal Financial Services, which has given a ‘neutral’ rating to the stock with a target price Rs 640, noted that successful implementation of these plans could lead to positive outcomes.
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