Ambuja Cements: We all know that the Indian construction industry is a vast canvas which constantly undergoes development. Ambuja Cement being a brand which has been a trusted supplier of building blocks for this progress has entered into a new chapter. Their recent acquisition has lightened things up and promises to redefine the company’s position.
This move isn’t just about money, it’s a strategic move taken by them to strengthen their presence and influence in the industry. As the ink dries on the deal, shareholders are eager to see how this will impact the company’s financial performance and its role in the future. Come let’s get to know more in detail about the company’s acquisitions.
Ambuja Cements – Company Overview
Ambuja Cements acts as a prominent player in the Indian Construction Industry. The company started its journey in 1983 and was originally named Gujarat Ambuja Cement Limited (GACL). Ambuja’s primary business includes the production and distribution of cement and cement-related products.
As a company, Ambuja provides a range of products like Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC) and other cement products like Ambuja Railcem for railway construction and Ambuja cool walls for thermal insulations.
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In 2006, 61.62% of the shares of Ambuja cement were acquired by a global cement giant named Holcim. In 2022, Adani Group purchased the entire stake of Ambuja held by Holcim for US $ 10.5 billion. As a company, Ambuja operates in multiple locations in India, with its headquarters in Mumbai.
With a significant presence across India, the company has its manufacturing units in Gujarat, Rajasthan, Himachal Pradesh, Chhattisgarh and Maharashtra. They also have grinding units in various other locations across India to serve the needs of the market.
Ambuja Cement primarily operates in the segment of Infrastructure and Construction by providing cement for commercial, residential and industrial projects. As a company, it has contributed significantly to India’s infrastructure development by helping in the construction of roads, dams, bridges and various other projects.
Acquisition of Sanghi Industries
In late 2023, Ambuja Cements acquired a 54.51% stake in Sanghi industries for Rs 5,185 crores. Sanghi Industries is India’s largest single-location cement and clinker production unit with 6. MTPA of cement grinding capacity and 6.6 MTPA of clinker capacity.
Reasons for this acquisition include
Since Sanghi Industries is present in Kutch, Gujarat it provides Ambuja an opportunity to expand its footprint in the western and coastal markets of India. With the help of Sanghi Industries 1 billion tonnes of high-grade limestone reserves, Ambuja can support its cement production for the next 40 years. This also allows them to increase the cement capacity at the Sanghipuram plant to 15 MTPA and produce low-cost clinker. Since Sanghi Industries has port facilities Ambuja Cement can transport their goods through the coastal route.
Acquisition of Asian Concretes and Cements by ACC Ltd the subsidiary of Ambuja Cements
ACC Ltd in January 2024 acquired the already owned stakes of Asian concrete and cement. They acquired the remaining 55% share for Rs 775 crores and increased its ownership to 100%. Asian Concretes and Cements Ltd is a Himachal Pradesh-based company.
Why did they acquire this firm
With this acquisition, the company can bolster its position in the North Indian market, particularly in the regions of Himachal Pradesh, Punjab and Haryana. This acquisition helped ACC to increase its cement capacity to 38.55 MTPA and aligns with Adani Group’s goal of doubling its cement capacity. It also enhances its operational synergies and helps in serving a vast base across the three states.
Acquisition of My Home Group’s grinding unit in Tamil Nadu
On April 15, 2024, Ambuja Cements, part of Adani Group acquired a 100% share of the 1.5 MTPA cement grinding unit of My Home Group which is located in Tuticorin, Tamil Nadu. They acquired this stake for a value of Rs 413.75 crore.
What was the reason for this acquisition?
With this acquisition, Ambuja Cements can strengthen its presence, particularly in the region of Tamil Nadu and Kerala. Tuticorin port allows Ambuja to efficiently serve high-growth markets through coastal distribution. Being located near the port and having a long-term fly ash agreement provides Ambuja with cost advantages and logistical support as well. Even the company can use the limited limestone of Tamil Nadu by leveraging coastal movement from its Sanghipuram plant.
Ambuja can also inherit the existing dealers and retain their current employees of My Home Group. By doing this they can facilitate a smooth transition and enable rapid capacity utilization. Now with this acquisition, the company has increased its production capacity to 78.9 MTPA and strengthened its position as the second-largest cement player in India.
Acquisition of Penna Cement Industries Limited (PCIL)
Penna Cement Industries Limited which was established in 1991 has a significant presence in Southern and Western India. This cement was considered one of the most trusted cement brands by small house owners to organized real estate developers in these regions. On June 13, 2024, Ambuja Cements acquired the entire shares of Penna Cement Industries Limited for an enterprise value of Rs 10,422 crores. Ambuja Cement said this acquisition will be completely funded through internal accruals.
What are the reasons for this acquisition?
Ambuja Cements with the acquisition of PCIL added 14 MTPA of cement grinding capacity and 10.3 MTPA clinker capacity to its existing operations. By doing this the company will now have a total capacity of around 89 MTPA. With this, the company will reach its target of producing 140 MTPA by 2028.
Since PCIL’s operations are primarily located in Andhra Pradesh, Rajasthan and Telangana it allows Ambuja to expand its market share in southern regions of India. Ambuja expects its market share to be increased by 8% in this region with this acquisition. PCIL’s competitive edges like strategic locations near railway sidings and ports along with waste heat recovery systems and captive power plants provide great advantages to the company.
With the company’s bulk cement terminals, Ambuja gets access to southern and eastern parts of peninsular India. They also get a chance to enter the Sri Lankan market through the sea route as well. Ambuja also plans to leverage PCIL’s assets and resources to increase the cement capacity through additional investments and debottlenecking. By doing this the company might generate an extra 3 MTPA of cement grinding capacity from the PCIL’s Jodhpur plant.
Even the company wants to make PCIL more competitive on cost and productivity by improving its overall operating performance. Ambuja wants to achieve this through increasing their share of green power, logistics optimization and long-term procurement strategies.
Merger of Adani Cementation and Ambuja Cements
On June 27, 2024 Adani Cementation entered into a merger with Ambuja cements. In this merger there was no cash outflow from Ambuja Cements but instead they made an agreement to swap the shares. The swap ratio is set at 174 shares of Ambuja Cements for every 1 share of Adani Cementation and by this Adani Enterprises will receive 8.7 million shares of Ambuja Cements.
Reasons for this merger
The main motive of Ambuja Cements for this merger is to enhance operational efficiency and strengthen their coastal footprint. This provides a better synergy for Ambuja Cements as Adani Cementation has strategic locations in Amba river in Raigad and Dahej port. This enables them to serve high growth markets like Mumbai and South Gujarat.
With these acquisitions and merger, Ambuja Cements wants to position itself as a leading Pan-India cement player and a strong competitor for Ultratech cements.
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Ambuja Cements – Financials
During FY 24, the company was able to increase its EBITDA margin by 73% to Rs 2,702 crore. Ambuja was also able to grow its volume by 15% in cement sales to 16 million and increased its share in premium cement products to 24% of trade sales. The company reduced its costs by taking initiatives in raw materials and power & fuel consumption which ultimately led to a 10% reduction in total cost per ton.
Looking at all these we can understand that Ambuja Cements have delivered great financial performance in FY 2024.
Conclusion
The recent acquisition made by Ambuja Cements presents a great opportunity for both growth and industry consolidation. The combined expertise and resources of Adani Group and Ambuja Cements have the potential to unlock new avenues for market expansion, efficiency and innovation. Analysts expect that this move will not only strengthen the company’s financial standing but also help in meeting the growing demand for construction materials in India.
Since the full impact of the acquisition is yet to be seen, one thing is clear. Ambuja Cements is poised for a great future and to lay a strong foundation for its success. What would you say about their future, will they be successful? Do let us know in the comments below.
Written by Pavunkumar V M
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