Adani Group forays into Cement via Blockbuster Acquisitions
Published by Sharekhan Education | June 2, 2022
Adani Group forays into Cement via Blockbuster Acquisitions
Amit Pathak|Sharekhan Education
Adani group has acquired a controlling stake in Ambuja and ACC from Swiss major Holcim. The deal will make Adani Cement the second-largest cement maker in India behind Ultratech cement. Ambuja and ACC currently have a combined installed production capacity of 70 mtpa. The two companies together have 23 cement plants, 14 grinding stations, 80 ready-mix concrete plants, and over 50,000 channel partners across India.
About the deal:
As per the deal, the conglomerate has agreed to acquire a 63.19 percent stake in Ambuja Cements and about 54.53 percent stake in ACC. Adani will buy shares in Ambuja Cements for Rs.385 per share and in ACC for Rs.2300 per share. The deal will cost ~ Rs 80000 crores to Adani. This is the biggest-ever acquisition by the Adani group and also India’s largest-ever merger and acquisition (M&A) transaction in the infrastructure and materials space.
Why is Holcim Exiting?
Holcim group is planning to focus on reducing its carbon footprints by divesting businesses such as Cement. Carbon footprint by exiting carbon-intensive industries like cement and investing in various new value-added products & solutions business, which are more environment-friendly. The group has recently started offloading its cement assets in various other geographies also like Brazil and Indonesia. Holcim’s exit from the cement business will improve its ESG standards.
Strategic Rationale for Acquisition:
Adani Group plans to build an integrated business model, with the cement business supporting its other infrastructure businesses. This includes ports, logistics, energy and real estate. Adani cement would benefit from synergies with the integrated Adani infrastructure platform in the areas of raw material, renewable power, and logistics. This will enable higher margins and return on capital employed.
India’s cement consumption is 242 kg per capita, as compared to the global average of 525 kg per capita. There is significant potential for the growth of the cement sector in India. The positive sentiment is best echoed by Gautam Adani, Chairman of the Adani Group: “Our move into the cement business is yet another validation of our belief in our nation’s growth story”. If one looks at the historical acquisitions or entry into new business verticals by the Adani group, they have succeeded in most of the new ventures. We have seen that in Ports, Edible Oil, and Renewable Energy segments. We expect something similar in Cement.
Offer to shareholders:
Adani Group would make an open offer to buy a 26% stake each in– Ambuja Cements and ACC Ltd from public shareholders. The price would be Rs385 for Ambuja and Rs2,300 for ACC (implying a marginal premium to CMP). Although investors might not get any immediate upside from this deal, the extent of growth plans and aggressiveness of the Adani Group will decide the fortune of ACC and Ambuja. We believe that the group will strive to reach maximum scale through organic as well as inorganic expansion. The cement sector is expected to see further consolidation which will strengthen pricing power but the overall demand and supply will remain unaffected. The pedigree of the new promoter will improve the long-term fundamental prospects of ACC and Ambuja Cement.
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