Ambuja Cements Shares Surge After Strategic Penna Cement Acquisition
Ambuja Cements experienced a notable share price increase of over 3% in early trading on Friday, following the announcement of its acquisition of Penna Cement Industries Ltd (PCIL) for an enterprise value of ₹10,422 crore. The stock reached a fresh 52-week high of ₹690.00 apiece on the BSE, signaling strong investor confidence in the deal.
The acquisition involves Ambuja Cements purchasing 100% of PCIL from its current promoters, Pratap Reddy and family, with the transaction fully funded through internal accruals, according to a regulatory filing on Thursday. PCIL currently has a cement capacity of 14 million tonnes per annum (MTPA), with 10 MTPA operational. The remaining capacity, which is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA), is expected to be completed within 6 to 12 months. Additionally, surplus clinker at the Jodhpur plant is projected to support an additional 3 MTPA grinding capacity, bringing the total potential capacity to 17 MTPA.
This acquisition significantly enhances Ambuja Cements’ presence in the southern market. Analysts are optimistic about this expansion, viewing it as a value-accretive move for the company. The deal is anticipated to boost Ambuja Cements’ market share and contribute to its growth ambitions.
Dharmesh Shah, a Research Analyst at Emkay Global Financial Services, highlighted that the acquisition is valued at a favorable $89 per tonne, potentially decreasing to $79 per tonne with the additional grinding capacity. Shah noted that this move could improve Ambuja’s market share by approximately 200 basis points (bps) pan-India and by 800 bps in the South. He also mentioned that Ambuja Cements aims to increase its capacity to around 113 MTPA by FY27 and accelerate growth to reach 140 MTPA by FY28. Emkay Global maintains a ‘Buy’ rating for Ambuja Cements shares, with a target price of ₹700 per share by March 2025.
Antique Stock Broking also pointed out that the implied valuation for the 17 MT clinker-backed capacities is around $85 per ton, which seems value-accretive. While regulatory approvals are still pending, the brokerage firm has yet to factor the transaction into its estimates but maintains a ‘Buy’ rating with a target price of ₹700 per share, based on a 17x consolidated FY26 EV/EBITDA.
Nuvama Institutional Equities observed that while PCIL has faced liquidity issues, a potential turnaround, similar to Ambuja Cements’ previous acquisition of Sanghi Industries, could enhance its value. The ramp-up in utilization at PCIL, which was at 39% in FY23, is expected to bring additional volumes to the market, potentially intensifying competition. Nuvama Equities appreciates Ambuja Cements for its robust capex plans and measures to improve cost efficiency. The brokerage retained a ‘Buy’ rating on Ambuja Cements shares with a target price of ₹767 per share, based on an 18x FY26 EV/EBITDA.
Ambuja Cements’ share price has experienced a significant rally, gaining 13% over the past month and over 18% in the last three months. Year-to-date (YTD), the shares have provided a return of more than 27%. At 9:16 AM, Ambuja Cements shares were trading 2.57% higher at ₹681.35 apiece on the BSE.
This recent acquisition and the subsequent rise in share price underscore investor confidence in Ambuja Cements’ strategic moves and growth potential. Analysts remain bullish on the Adani Group’s cement manufacturer, highlighting its strong market position, expansion plans, and financial health. The Penna Cement acquisition is seen as a strategic fit, enhancing Ambuja Cements’ capacity and market share while offering significant growth opportunities in the coming years.