Small-sized cement shares in focus; Sanghi, NCL, Saurashtra rally up to 11%

As per media reports, Adani Group was evaluating multiple cement companies like Penna Cement, Saurashtra Cement, JP Associates' cement business & Vadraj Cement for acquisition.

Shares of small-sized cement companies were in focus and rallied up to 10 per cent on the BSE in Thursday’s intra-day trade backed by heavy volumes after reports suggested that Adani Group was evaluating multiple cement companies for acquisition.

Shares of Sanghi Industries, now part of Adani Group, were locked at the 10 per cent upper circuit at Rs 103.08, on the back of over three-fold jump in trading volumes compared to the 2-week average volumes.

NCL Industries (Rs 258.45) and Saurashtra Cement (Rs 148.80) hit their respective 52-week highs and rallied 11 per cent on the BSE in intra-day trade. In comparison, the BSE Sensex was up 0.26 per cent at 76,807.51 at 02:25 pm.

On clarification on increase in volume, Saurashtra Cement today informed the stock exchanges that the company has disclosed all the information under Regulation 30 from time to time and there were no pending disclosures.

The Adani Group is exploring several potential acquisitions in the cement sector, including Hyderabad-based Penna Cement, Gujarat’s Saurashtra Cement, Jaiprakash Associates’ cement business, and Vadraj Cement owned by ABG Shipyard, according to a report by The Economic Times.

The Adani Group has earmarked $3 billion for these acquisitions, signalling an aggressive inorganic growth strategy, as the conglomerate strategies to become the largest cement manufacturer in India.

In terms of capacity, Penna Cement current capacity stands at 10 million tonnes per annum (mtpa) while Saurashtra Cement, JP Associates' & Vadraj cement has 5 mtpa, 9.5 mtpa & 6 mtpa respectively.

Adani Group has been aggressively looking at increasing its cement capacity to strengthen its position and gain market share across regions (20 per cent by FY28 from 14 per cent at present). Ambuja's total consolidated cement capacity stands at 79 mtpa and in process of expanding it to 100 mt by FY26. The group aims to reach a total capacity of 140 mtpa by FY28E, for which it is exploring both organic and inorganic routes.

With a healthy cash & bank balance position, the group is well positioned for aggressive capacity expansions and further strengthening its position which would drive volume growth for both the companies (Ambuja and ACC). Valuation of $85-120 per ton is also in the comfort range considering the current capex cost for a greenfield plant, ICICI Securities said in a note.

Meanwhile, as the country prepares for rapid economic growth and urbanisation, there is a rising demand for robust infrastructure and contemporary living spaces. Upliftment of Tier-II cities and rural areas is also fuelling the need for housing, transportation networks, healthcare facilities, and educational institutions.

Additionally, the surge in commercial and industrial activities is boosting demand for commercial spaces. With this positive outlook, the Indian cement sector anticipates demand increasing by 8-9 per cent in FY 2024-25. It also foresees 150-160 MTPA in capacity additions over the next five years, utilising organic expansion strategies, Sanghi Industries said in its FY24 annual report.