The cement producer owned by the Adani Group, Ambuja Cements, announced in a regulatory filing on Thursday that it will purchase all of the shares of PCIL from Pratap Reddy and his family, the company's current promoter group. The acquisition will be entirely financed by internal accruals.
The price of Ambuja Cements' shares has increased significantly, rising 13% in a single month and more than 18% in a span of three months. The shares of Ambuja Cements have returned more than 27% so far this year (YTD). (Image: The Economics Times)
After the Adani Group company announced the acquisition of Penna Cement Industries Ltd (PCIL) at an enterprise value of ₹10,422 crore, the share price of Ambuja Cements surged more than 3% to a 52-week high in early trade on Friday. On the BSE, Ambuja Cements shares increased by as much as 3.86% to reach a new high of ₹690.00 a share.
The cement producer owned by the Adani Group, Ambuja Cements, announced in a regulatory filing on Thursday that it will purchase all of the shares of PCIL from Pratap Reddy and his family, the company's current promoter group. The acquisition will be entirely financed by internal accruals.
Of PCIL's 14 MTPA cement capacity, 10 MTPA are now in operation, and the remaining 2 MTPA and 2 MTPA are being built at Krishnapatnam and Jodhpur and will be finished in six to twelve months. Additionally, it stated that the Jodhpur plant's excess clinker will allow for an extra 3 MTPA of cement grinding capacity on top of the 14 MTPA capacity.
Analysts say the company's entry into the southern market is encouraging for its growth aspirations and that the acquisition will add value to Ambuja Cements. Analysts' optimistic outlook for Ambuja Cements' stock has not changed.
Accretive Penna Acquisition Value
Dharmesh Shah, Research Analyst at Emkay Global Financial Services, calculated that the deal is valued favourably at $89 per tonne, but that price might drop to $79 per tonne if 3 mt of additional grinding capacity is added.
Also, the acquisition will increase Ambuja's market share throughout India by about 200 basis points and in the south by 800 basis points. In addition to its current expansion plans, the company aims to accelerate growth to reach its target of 140 mt by FY28 and increase capacity to about 113 mt by FY27, according to Shah.
The brokerage business continues to favour Ambuja Cements because of its solid financial sheet, high growth or capital expenditure plans, and presence throughout India. It kept its March 2025 target price of ₹700 per share and its "Buy" recommendation for Ambuja Cements shares.
According to Antique Stock Broking, the inferred valuation of 17 MT clinker-backed capabilities is estimated to be $85 per tonne, suggesting that it is a value addition. Since that regulatory permissions are still pending, it has not yet included the transaction in its estimations.
The firm upheld a "Buy" recommendation, citing a 17x consolidated FY26 EV/EBITDA share price objective for Ambuja Cements.
"We anticipate EBITDA/ton to gradually increase from ₹1,082/ton in FY24E to ₹1,213 by FY25E and ₹1,304 by FY26E, driven by enhanced cost efficiencies," the statement read. "We factor 12% consolidated volume CAGR over FY24-26E."
Although PCIL has been having liquidity problems, a possible reversal (like with the Sanghi acquisition) might increase the value for Ambuja Cements, according to Nuvama Institutional Equities. Simultaneously, a 39% increase in PCIL's utilisation in FY23 will bring in more volumes and boost competition.
Ambuja Cements is favoured by Nuvama Equities due to its sound capital expenditure strategies and cost-cutting initiatives. It kept its "Buy" rating on Ambuja Cements shares, aiming for ₹767 per share based on an 18x FY26E EV/EBITDA ratio.
The price of Ambuja Cements' shares has increased significantly, rising 13% in a single month and more than 18% in a span of three months. The shares of Ambuja Cements have returned more than 27% so far this year (YTD).
Ambuja Cements shares were up 2.57% at ₹681.35 a share on the BSE at 9:16 a.m.
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