adani group: price change, scale, mergers and acquisitions in the mix. Stay invested in ACC, Ambuja

ET Intelligence Group: The acquisition of Holcim’s 63.11% stake by Adani Group for $10.5 billion (approximately ₹81,361 crore) is likely to change a few important dynamics in the Indian cement industry. First, it will make Adani Group the second largest cement producer with a combined capacity of nearly 70 million tonnes (MT) after , which has a capacity of 120 MT. Second, Adani’s entry could affect the price trend in the sector. Furthermore, further consolidation in the sector cannot be ruled out. For investors, it makes sense to stay invested in stocks and Ambuja given the benefits of scale.

According to details shared by Holcim, Adani will pay ₹385 for a share of Ambuja Cements and ₹2,300 for a share of ACC. This equates to a premium of 7-8% over their current market price. Analysts had estimated a higher premium to the current market price of ACC and Ambuja Cement.

Adding new cement capacity takes time. According to industry estimates, it takes about five years to install 5 MT capacity. The acquisition of the capacities of ACC-Ambuja will therefore allow the Adani Group to access substantial capacities all at once. The Cement business will be complementary to Adani Group given its presence in the infrastructure segment. The acquisition of cement capacities will enable the Adani Group to benefit from backward integration, as cement is a major input for the infrastructure sector.

Analysts increasingly believe that the price trend in the industry could change in the short term. An analyst, speaking on condition of anonymity, said: “Adani will be the second largest player in the industry with a strong distribution network and a wide geographical presence. There is a good chance that this will lead to aggressive pricing in the industry.” .

According to the calendar year 2021 financial statements, ACC and Ambuja Cements together have cash and cash equivalents of approximately ₹19,276 crore. In addition, both companies are debt free. An analyst, who wished not to be named, said given the money on the books, Adani will have no trouble funding the deal. As of calendar year 2021, the combined cash flow of ACC and Ambuja Cements is over ₹5,000 crore. This would reduce Adani’s debt burden.