M&A: Adani group acquires 100% stake in Penna Cement

Transaction:

• Adani owned Ambuja Cements Limited enters into binding agreement for the acquisition of Hyderabad-based Penna Cement Industries Limited (PCIL) at an EV of Rs. 10,422 Crore.
• Ambuja will acquire 100% shares of PCIL from its existing promoter group P Pratap Reddy and family. Also, the acquisition will be fully funded through internal accruals.

About Penna Cement Industries Limited:

• Founded in 1991, Penna Cement is one of the largest privately held cement company and has significant footprints in southern and western India.
• It caters to customers across 13 states and their esteemed clients include L&T Construction, KMC, Aparna, Brigade Group and Sobha Construction.
• PCIL has total installed cement production capacity of 14 MTPA, with operational capacity of 10 MTPA. This capacity is spread across its four integrated manufacturing facilities and two grinding units located in Andhra Pradesh, Telangana, and Maharashtra.

About Ambuja Cements Limited:

• Established in 1983, as Gujarat Ambuja Cements Limited (GACL) is now a member of Adani diversified group, known for its hassle-free, home-building solutions.
• Ambuja, with its subsidiaries ACC Ltd. and Sanghi Industries Ltd, has taken the Adani Group’s cement capacity to 78.9 MTPA, with 18 integrated cement manufacturing plants and 19 cement grinding units across the country

Rationale:

• Ambuja is poised to expand its market presence in south India and reinforce its position as a pan-India leader in the cement industry.
• The acquisition of Penna Cement will increase the total capacity of the Adani Group to 89 MTPA, thus accelerating its progress toward the target of 140 MTPA by 2028.
• The acquisition will expand Adani’s market share in southern India and mark its entry into Sri Lanka, where Penna Cement Industries Ltd (PCIL) operates a unit through a local subsidiary.
• The acquisition will strengthen Adani Cement’s Sea transportation logistics with five bulk cement terminals at Kolkata, Gopalpur, Karaikal, Kochi, and Colombo to serve peninsular India.
• PCIL has 14 MTPA cement capacity, of which 10 MTPA is operational and the remaining is under construction at Krishnapatnam and Jodhpur. Further, Ambuja’s surplus clinker at the Jodhpur plant will support an additional 3 MTPA cement grinding capacity over and above 14 MTPA.
• The PCIL’S strategic location and sufficient limestone reserves provide an opportunity to increase cement capacity through debottlenecking and additional investment.
• The existing dealers of PCIL will move to Adani Cement’s market network to bring in formidable synergy.
• The acquisition will increase Adani Cement’s market share pan India by nearly 2% and around 8% in South India.
• Following the announcement, shares of Ambuja Cements surged more than 3.85 per cent to Rs 690 during the trading session on Friday, commanding a total market capitalization of more than Rs 1.70 lakh Crore.
• In FY24, Ambuja Cements’ standalone PAT stood at Rs 2,335 Crore as compared to Rs 2,058 Crore. Revenue from operation stood at Rs 17,919 Crore, as against Rs 16,060 Crore in FY23.
• Adani Group ventured into the cement sector in September 2022, acquiring controlling stakes in Ambuja Cements from Swiss firm Holcim for nearly Rs 51,000 Crore. Ambuja Cements holds a 51% stake in ACC Ltd. Subsequently, Adani launched an Rs 31,000 Crore open offer for acquiring an additional 26% stake from public shareholders.
• Adani Cement is on an expansion trajectory, both organically and through acquisitions, aiming for a 140 MTPA capacity & 20% market share by 2028. Last December, Adani completed the acquisition of Saurashtra-based Sanghi Industries Ltd at an enterprise value of Rs 5,185 Crore.