Adani on deal street again as Ambuja snaps up Penna Cement for Rs 10,422 crore

The move will increase the already competitive cement market which is currently dominated by the Birlas-owned Ultratech which has an annual capacity of 146 million tonnes
Adani on deal street again as Ambuja snaps up Penna Cement for Rs 10,422 crore

MUMBAI: The Adani group-owned Ambuja Cements has snapped up 100 percent equity from the promoters of the Hyderabad-based Penna Cement -- P Pratap Reddy and family -- for Rs 10,422 crore, as the ports-to-airports-to-energy conglomerate seeks to ramp up its cement play, which began in 2022 with the acquisition of Ambuja Cements and ACC.

In an exchange filing on Thursday, Ambuj said the indicative time period for completion of the deal is three to four months.

The move will increase the already competitive cement market which is currently dominated by the Birlas-owned Ultratech which has an annual capacity of 146 million tonnes, while Adani’s current capacity is just half of that at around 79 mtpa across 18 plants, which gives it a 14 percent market share.

With 550 mtpa capacity, the country is the second largest cement maker in the world after China’s 1.5 billion tonnes as of 2022.

Adani group which has been expanding operations through debt-driven acquisitions all these while, said the entire acquisition cost will be met through internal accruals.

Ambuja will acquire 100 percent shares of Penna from its promoter group P Pratap Reddy and family. The acquisition will be fully funded through internal accruals, said the cash-rich company that is also fully debt-free. As of March 2024, it was sitting on a cash pile of over Rs 24,300 crore and had a Rs 8300-crore warranty money from the promoters.

“The acquisition is a significant step forward in Ambuja Cement’s accelerating growth journey,” said Ajay Kapur, the chief executive of Ambuja Cements.

Penna’s consolidated turnover for the last three years stood at Rs 1,241 crore (FY24), Rs 2,002 crore (FY23 and Rs 3,204 crore in FY22, he said.

Penna Cement was incorporated in October 1991 in Hyderabad, and has cement manufacturing in Sri Lanka as well apart from the home market, directly and through its subsidiaries. It has an installed capacity of 10 mtpa now and is reportedly adding 5.5 mtpa.

The Adanis entered the cement business in August 2022 by acquiring the stakes held by the Swiss major Holcim in Ambuja Cements and its subsidiary ACC for $6.4 billion of which $4.5 billion were raised in debt.

Of the $4.5 billion debt funded deal, the billionaire Gautam Adani-controlled group had already refinance $3.5 billion loan as of October 2023 from ten international banks such as Deutsche Bank, Standard Chartered Bank, Barclays, Citibank, MUFG Bank, Sumitomo Mitsui Banking Corp and other lenders.

Late last year, Ambuja Cements had acquired a 56.74 percent stake in the Gujarat-based cement maker Sanghi Industries, valuing the latter at Rs 5,000 crore.

“By acquiring Penna, Ambuja is poised to expand its market presence in the South and reinforce its position as a pan-India leader. Penna’s location and sufficient limestone reserves provide an opportunity to increase cement capacity through debottlenecking and additional investment.

Importantly, the bulk cement terminals will prove to be a game-changer by giving access to the Eastern and Southern parts of peninsular India, apart from an entry to Sri Lanka, through the sea route. Our aim is to make Penna highly competitive on cost and productivity and improve its operating performance,” Kapur said.

The group has set an internal target of jacking up its cement capacity to 140 mtpa from the present 79 mtpa and ramp up its market share from the present 14 percent to 20 percent or more.

Penna has 14 mtpa capacity of which 10 mtpa is operational now, this totals Adani’s capacity to 89 mtpa now and is a forward step towards its target capacity of 140 mtpa by 2028, the group said in a statement, adding the deal increases Adani Cement’s market share by 2 percentage points to 16 percent.

The 4 mtpa capacity is coming up at Krishnapatnam in Andhra (2 mtpa) and Jodhpur (2 mtpa) and will be completed over the next months.

Penna’s 14 mtpa capacities are in Andhra, Telangana and Rajasthan which is under-construction and the surplus clinker at the upcoming Jodhpur plant will support additional 3 mtpa cement grinding capacity.

The deal also strengthens Adani Cement’s sea transportation logistics with five bulk cement terminals at Kolkata, Gopalpur, Karaikal, Kochi and Colombo, the statement added.

Ambuja with its subsidiaries ACC and Sanghi Industries has taken the Adani Cement capacity to 78.9 mtpa, with 18 integrated cement manufacturing plants and 19 cement grinding units.

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