Ambuja Cement shares surge 4% after acquiring Penna Cement

Shares of Adani-owned Ambuja Cements rallied 4% to its new all-time high of Rs 690 in Friday's early trade on BSE after the company announced that it has acquired a 100% stake in Penna Cement (PCIL).

“Ambuja Cement, the cement and building material company of Adani Cement and part of the diversified Adani Group, today announced the signing of a binding agreement for the acquisition of Penna Cement Industries Ltd (PCIL) at an enterprise value of Rs. 10,422 crore. Ambuja will acquire 100% shares of PCIL from its existing promoter group, Mr. P. Pratap Reddy and family. The acquisition will be fully funded through internal accruals,” said the company in a filing to the exchanges

The acquisition is in line with the company’s strategy to increase its footprint in the cement manufacturing market and is expected to be completed within a span of 3-4 months, as per the filing.


The total cost of this acquisition will be Rs.10,422 crore which will be subject to closing adjustments.

Here is how brokerages view the update:

Nuvama

PCIL has a capacity of 14 mtpa (10mtpa operational, balance under construction), further expandable to 17 mtpa, indicating an acquisition price of USD85/t. While PCIL has been facing liquidity issues, a potential turnaround can enhance the value for Ambuja Cements. At the same time, utilisation ramp-up at PCIL (39% in FY23) shall bring in additional volumes to the market and intensify competition.

Nuvama reiterated its ‘buy’ call on the stock with a target price of Rs 767.

Emkay Global

The deal is pegged at a favorable valuation of USD89/t, which may decline to USD79/t with potential grinding capacity addition of 3mt. Besides, the acquisition would improve Ambuja’s market share by 200bps pan-India and by 800bps in the South. Along with its ongoing expansion plans, the company targets increasing capacity to 113mt by FY27 (CAGR: 13%) as well as accelerating growth to achieve its target of 140mt by FY28.

Emkay has maintained a ‘buy’ view on the stock with a target price of Rs 700, stating that they have not yet incorporated the acquisition into their financials.

Macquarie

The company has expanded its regional footprint in the South India region. Capacity share in South India has been improving from 4-5% currently to 10-11%. The deal value in the US$90-100/ton range is higher relative to organic expansion cost for ACEM and its peers and inline with recent acquisitions in the sector.

Macquarie has a ‘neutral rating on the stock with a target price of Rs 608.

Motilal Oswal

Ambuja is focusing on further cost reduction by increasing the share of green power and AFR, engaging in long-term procurement strategies for critical raw materials, and optimizing logistics. A successful execution of these plans could result in a positive surprise. The company has reiterated its capacity target of 140mtpa by FY28, for which work is in progress at different stages.

Motilal Oswal has retained a neutral rating on the stock with a target price of Rs 640.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)