After Penna acquisition, Ambuja Cements to merge Adani Cementation biz with itself

Cement & cement products maker Ambuja Cements Ltd shares are trading 0.81% up at ₹666.65 on the BSE today after it announced a merger with Adani Enterprises Ltd's cement business. The company said Adani Cementation Ltd. (ACL) will be merged with Ambuja Cement through the Scheme of Amalgamation. Post-merger, the Adani Enterprises company will become a wholly owned subsidiary of Ambuja Cements. 

As part of the merger plan, Ambuja Cements will issue shares as consideration (no cash outflow) to Adani Enterprises under the proposed transaction, with a SWAP ratio of 174 shares of Ambuja Cements for every 1 share of Adani Cementation.

In its rationale behind the merger, Ambuja Cement says the strategic locations (near Dahej port & Amba River - Raigad) will enable source clinker by sea as well as rail to serve high growth market of South Gujarat and Mumbai. "ACL’s limestone resource to further enhance Ambuja’s consolidated limestone reserves," the company said.

AEL's cement business comprises Adani Cementation Ltd and Adani Cement Industries Ltd. The company says the combined entity will have a competitive advantage. "Limestone mine on Gujarat Coast to enable transportation of clinker in a cost-effective manner...Strengthen Ambuja’s coastal footprint....Fiscal Incentives available to Dahej GU."

The merger will also allow capacity addition of 2.5 MTPA, including 1.3 MTPA which is operational and 1.2 MTPA under construction. The company also expects utilisation of more than 85%. Additionally, Ambuja Cement says the consolidation of cement capacities within the Group will enhance operational efficiency and create stakeholder value.

On June 18, 2024, Ambuja Cement agreed to acquire a 100% stake in Penna Cement (PCIL), moving towards its target capacity of 140 MTPA by 2028. The company was acquired for a ₹10,422-crore deal sealed through a binding agreement. PCIL brings to the table a substantial cement capacity of 14 MTPA, with 10 MTPA already operational, and the remaining 4 MTPA is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and will be completed within 6 to 12 months.

Ambuja had a relatively small presence in the South-Indian market with just 8% market share which, post this deal, has inched up to 15%. The share of South in Ambuja’s consolidated capacity, too, doubles from 10% to 20%.

The entry of Ambuja Cement (a cost-focused player) in AP and Telangana markets might make things tough for smaller players, says an Equirus Securities report. “We reiterate our belief that ACEM remains one of the best plays in Large + Mid cap cement space given its aggressive expansion plans (organic + In-organic), extreme focus on cost improvement and strong B/S position,” says the brokerage.

Ambuja Cements reported a 63.8% year-on-year increase in the consolidated net profit to ₹1,055 crore (attributable to the owners) in the March quarter of FY24, as against ₹644 crore in the same period last year. The company’s revenue during the quarter stood at ₹8,893.99 crore, up 11.6%, as against ₹7,695.98 crore in the corresponding period of the previous fiscal year.