Penna Cement acquisition: Adani spells out Lanka, South India strategy

Company sets target to achieve 140 MTPA capacity by 2028, aided by greenfield expansions

Adani Group’s Ambuja Cements looks to strengthen its South India presence with its latest acquisition. The company had on Thursday announced that it would acquire Hyderabad-based Penna Cement Industries Ltd (PCIL) at an enterprise value of Rs 10,422 crore. Ambuja Cements plans to fund the acquisition through internal accruals.

Top executives from the company told analysts that the acquisition will help them enter new markets like Sri Lanka and address under-supply issues for the South market in India.

Outlining their South India market strategy, Ajay Kapur, chief executive officer (CEO) for Ambuja Cements, on a call with analysts on Friday said the acquisition fits well for both South India and West India strategies.

The acquisition will increase Ambuja Cements’ capacities in Andhra Pradesh, Telangana and Maharashtra, and also in Rajasthan, on completion of under-construction units. Kapur added the acquisition will almost double Adani Cement’s market share in South India to 15 per cent.

The CEO further said, “You might be aware that many years ago Ambuja had a bulk cement terminal in Sri Lanka. With the Group port, it helps us to start capturing market growth.”

 

Adani Ports and SEZ (APSEZ) has a presence at Sri Lanka’s Colombo port through a consortium. Ambuja Cements' close rival UltraTech Cement also supplies to the Sri Lanka market.

Kapur also said that the South India market was under-supplied by the company and hence it was losing market share. The top executive is hopeful the latest acquisition will address these concerns. In its presentation to investors, Ambuja Cements noted it looks to ramp up Penna Cement’s capacity utilization to 85 per cent in the next three years’ time.

Commenting on the demand scenario in the South market, Kapur told analysts: “With the new regime in Andhra Pradesh, I believe there should be a lot of development work demand.”

Company executives noted that with the latest Ambuja Cements’ deal and UltraTech’s acquisition of Kesoram's cement units, the market share of top-5 players in South India will consolidate further to 55 per cent.

Adani Cement has set a target to achieve 140 MTPA capacity by 2028, which includes greenfield expansions. The Penna Cement acquisition, the executives noted, will slow down its planned greenfield expansion in South India. However, they clarified, planned expansions for other markets will continue.

Vinod Bahety, chief financial officer (CFO) at Ambuja Cements, noted that they will still end the current financial year with Rs 10,000 crore of cash surplus. In terms of operational capacity, the executives aim to end FY25 with 96-100 MTPA and hit 110 MTPA by FY26.

The company said it targets a more than 15 per cent of returns on capital employed (ROCE) for this acquisition. At Rs 10,422 crore, the acquisition cost works out to $85 per tonne.

Adani Power forms  subsidiary for investments

Adani Power on Friday said it has incorporated a wholly owned subsidiary named Adani Power Global Pte in Singapore on Friday.  The objective  of the subsidiary, the firm said, is to invest in power, infrastructure, and related fields.