Ambuja Cements: Will ‘cheap’ acquisition of Penna Cement make Adani shares attractive?

Ambuja Cements Ltd, a subsidiary of Adani Group, has announced the acquisition of 100% stake in Penna Cement Industries (PCIL) for an enterprise value of Rs 10,400 crore for a cement grinding capacity of 14 million tonnes per annum and a clinker capacity of 10.3 million tonnes per annum. year. The brokerage firm believes that the valuation of this acquisition is cheap and could make Ambuja Cement an attractive option.

Systematix Institutional Equities views this transaction, which is valued at $89 per tonne (assuming enterprise value includes completion of 4 million tonnes per year), as increasing value and less expensive than the recent Sanghi acquisition. Moreover, the clinker surplus could provide an additional 3 mt/y of grinding capacity, which could be worth $30-35 million per tonne, making it more attractive, he said.

“Ambuja Cement has surplus clinker at its Jodhpur plant which will be required for additional grinding of 3 tonnes. The implied valuation for 17 tonnes of clinker-based capacity will be $85 per tonne, which we believe appears to be adding value,” Antique Stock Broking said.

Following the announcement, shares of Ambuja Cements rose over 3.85 per cent to Rs 690 during Friday’s session, taking the total market capitalization to over Rs 1.70 lakh crore. In the previous trading session, the scrip price was pegged at Rs 664.30.

While PCIL is facing liquidity issues, a potential turnaround (similar to the Sanghi acquisition) could boost the value of Ambuja Cements. At the same time, increasing resource utilization in PCIL will bring additional volumes to the market and intensify competition, Nuvama Institutional Equities said.

Market participants expect that the acquisition will be finalized within 3-4 months and will be fully financed from internal accruals. This will increase Adani Cement’s production capacity to 89 MTPA (further to 93 MTPA) from the current 79 MTPA. This is in line with Adani Cement’s earlier target of achieving 140 MTPA by 2028, they said.

Penna Cement has 60 per cent of its current production capacity in Andhra Pradesh, 30 per cent in Telangana and the remaining 10 per cent in Maharashtra. Experts believe that the acquisition will expand Ambuja Cement’s dominance in the southern region as its share of production capacity will increase to 20 percent from the earlier 10 percent.

“We like Ambuja Cement for its prudent investment plans and cost-efficiency measures,” Nuvama said with a “buy” rating and a price target of Rs 767 at 18 times EV/Ebitda for 2026. It sees around 16% upside in the stock compared with the previous closure.

“The acquisition will strengthen Adani Cement’s ocean freight logistics with five bulk cement terminals in Kolkata, Gopalpur, Karaikal, Kochi and Colombo, serving MD in Peninsular India. We expect Penny’s strategic geographic presence and clinker and limestone resources to complement Ambuja’s growth plans well,” Systematix said with a “hold” rating and a target price of Rs 652.

“We have not yet included this transaction in our estimates given that we are still awaiting regulatory approvals. We maintain a ‘buy’ rating with an unchanged target price of Rs 700 based on 17x 2026 consolidated EV/Ebitda,” Antique added in its latest report .

Ambuja Cement is focused on further cost reduction by increasing the share of green energy and AFR, engaging in long-term procurement strategies for critical raw materials and optimizing logistics. Successful execution of these plans could result in a positive surprise, says Motilal Oswal Financial Services, which has a ‘neutral’ rating on the stock with a target price of Rs 640.

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