Ambuja Cements share price rises 3% as Penna Cement acquisition appears to add value; analysts are optimistic about Adani

Ambuja Cements share price rose over 3% on Friday to hit a 52-week high early in the session after Adani Group announced the acquisition of Penna Cement Industries Ltd (PCIL) at an enterprise value of ₹10,422 crores. Ambuja Cements shares rose as much as 3.86% to hit a new high ₹690.00 per piece on BSE.

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

PCIL has a cement production capacity of 14 MTPA, of which 10 MTPA is operational and the remaining part is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and will be completed in 6 to 12 months. Moreover, surplus clinker at the Jodhpur plant will provide an additional cement grinding capacity of 3 MTPA over 14 MTPA, she added.

Read here: Ambuja Cements’s takeover of Penna Cement ₹10,422 crore increases Adani’s cement market share by 8%

Analysts believe that thanks to the company securing a foothold in the southern market, the expansion bodes well for its development ambitions, and the transaction will increase the value of Ambuja Cements. Analysts maintained their bullish sentiment on the Ambuja Cements stock.

Increasing the value of Penny acquisition

According to calculations by Dharmesh Shah, research analyst at Emkay Global Financial Services, the transaction is based on a favorable valuation of $89 per tonne, which could drop to $79 per tonne with a potential increase in milling capacity by 3 million tonnes.

“Besides, the acquisition would increase Ambuj’s market share by ~200 basis points across India and by 800 basis points in the south. In addition to the ongoing expansion plans, the company aims to increase production capacity to ~113 tonnes by FY27 and also accelerate growth to achieve the target of 140 tonnes by FY28,” Shah said.

Read also: Gautam Adani’s Ambuja Cements is developing a $9 billion war plan for the Ultratech battle

The brokerage firm maintains its preference for Ambuja Cements due to its strong growth or capex plans, pan-India presence and solid balance sheet. It maintained its buy call for Ambuja Cements shares and the target price for March 2025 at ₹700 per share.

Antique Stock Broking believes that the implied valuation for 17 tonnes of clinker-based capacity would be $85 per tonne, which appears to be adding value. The company has not yet included this transaction in its estimates given that it is still awaiting regulatory approval.

The brokerage house maintained its “Buy” recommendation with the target price of Ambuja Cements shares at ₹700 pcs. based on 17 times consolidated EV/EBITDA for 2026.

Read also: The Adani family is investing ₹8,339 cr more in Ambuja Cements; the rate increases to 70.3%

“We account for 12% consolidated volume CAGR in FY24-26E and expect EBITDA/tonne to increase slightly ₹1082/tonne in FY24E to ₹1213 to FY25E i ₹1304 by FY26E, driven by improved cost efficiency,” it said.

Nuvama Institutional Equities notes that while PCIL is facing liquidity issues, a potential turnaround (similar to the Sanghi takeover) could boost the value of Ambuja Cements. At the same time, increased utilization in PCIL (39% in FY23) will drive additional volumes into the market and increase competition.

Nuvama Equities likes Ambuja Cements for its sound capital expenditure plans and measures to increase cost efficiency. She maintained a “Buy” rating on Ambuja Cements shares with a target price ₹767 per share at 26E EV/EBITDA of 18x.

The share price of Ambuja Cements has seen a decent rally as the company’s stock has gained 13% in one month and over 18% in three months. Year-to-date (YTD), Ambuja Cements shares have returned over 27%.

At 9:16 am, Ambuja Cements shares were trading 2.57% higher at 1:00 ₹681.35 per piece on BSE.

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Disclaimer: The views and recommendations presented above are those of individual analysts or brokerage firms, not of Mint. We advise investors to seek the opinion of certified experts before making any investment decisions.