Ambuja Cements shares in focus as Penna Cement acquisition seem value accretive

Ambuja Cements share price will be in focus on Friday after the Adani Group firm announced the acquisition of Penna Cement Industries Ltd (PCIL) at an enterprise value of 10,422 crore.

Ambuja Cements will acquire 100% shares of PCIL from its existing promoter group, Pratap Reddy and family and the acquisition will be fully funded through internal accruals, the Adani Group cement manufacturer said in a regulatory filing on Thursday.

PCIL has 14 MTPA cement capacity, of which 10 MTPA is operational, and the remaining is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and will be completed within 6 to 12 months. Further, surplus clinker at the Jodhpur plant will support an additional 3 MTPA cement grinding capacity over and above 14 MTPA, it added. 

Read here: Ambuja Cements’ acquisition of Penna Cement for 10,422 crore raises Adani’s cement market share by 8%

With the company securing a foothold in the southern market, analysts believe the expansion bodes well for its growth ambition and the deal to be value accretive for Ambuja Cements. Analysts have maintained their bullish stance for Ambuja Cements shares.

Penna Acquisition Value Accretive

As per calculations by Dharmesh Shah, Research Analyst at Emkay Global Financial Services, the deal is pegged at a favorable valuation of $89 per tonne, which may decline to $79 per tonne with potential grinding capacity addition of 3 mt. 

“Besides, the acquisition would improve Ambuja’s market share by ~200 bps pan-India and by 800 bps in the South. Along with its ongoing expansion plans, the company targets increasing capacity to ~113 mt by FY27 as well as accelerating growth to achieve its target of 140 mt by FY28,” Shah said. 

Also Read: Gautam Adani’s Ambuja Cements draws up $9-billion war plan for Ultratech battle

The brokerage firm maintains its preference for Ambuja Cements, given its strong growth or capex plans, pan-India presence, and robust balance sheet. It retained its ‘Buy’ call for Ambuja Cements shares and March 2025 target price at 700 per share.

Antique Stock Broking is of the view that the implied valuation for 17 MT clinker-backed capacities would work out to $85 per ton, which seems value accretive. It is yet to factor the transaction into its estimates given regulatory approvals are still awaited. 

The brokerage maintained a ‘Buy’ rating with Ambuja Cements share price target of 700 apiece, based on 17x consolidated FY26 EV/EBITDA.

Also Read: Adani family invests 8,339 cr more in Ambuja Cements; stake rises to 70.3%

“We factor 12% consolidated volume CAGR over FY24-26E and expect EBITDA/ton to inch up from 1,082/ton in FY24E to 1,213 by FY25E and 1,304 by FY26E led by improved cost efficiencies,” it said.

Nuvama Institutional Equities notes that while PCIL has been facing liquidity issues, a potential turnaround (similar to Sanghi acquisition) 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 Equities likes Ambuja Cements for its healthy capex plans and measures to lift cost efficiency. It retained a ‘Buy’ rating on Ambuja Cements shares with a target price of 767 per share on FY26E EV/EBITDA of 18x.

Ambuja Cements share price has seen a decent rally as the stock has gained 13% in one month and more than 18% in three months. Year-to-date (YTD), Ambuja Cements shares have given over 27% returns.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 14 Jun 2024, 08:57 AM IST

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