For the Adani Group, cement is a core business today. In just under three years, the conglomerate has grown its capacity from almost nothing to a total of 75 million tonnes per annum (mtpa), positioning itself as the second-largest player in the industry, trailing only UltraTech Cement’s 140 mtpa capacity.
It is worth noting that a significant portion of the growth has been inorganic, starting with the big-ticket $10.5-billion deal to acquire Ambuja Cements and ACC. The latest one is the buyout of Hyderabad-based Penna Cement Industries for Rs 10,420 crore. Currently, Penna Cement has a total capacity of 10 mtpa and another 4 mtpa is under construction. Once the deal is closed, the total capacity of the Adani Group’s cement business will expand to 85 mtpa. The group aims to achieve a production capacity of 140 mtpa by 2028, while market leader UltraTech Cement has set its sights on reaching a capacity of 200 mtpa.
From a strategic point of view, the acquisition of Penna Cement (through Ambuja Cements) will strengthen Adani’s position in south India, which has historically witnessed low capacity utilisation. Of Penna Cement’s existing capacity, 90% comes from Andhra Pradesh and Telangana, and the rest from Maharashtra. The additional capacity will come up in Krishnapatnam in Andhra Pradesh and Jodhpur in Rajasthan. The deal also includes limestone capacity, but specific details have not been disclosed. “Along with its ongoing expansion plans, Ambuja Cements targets increasing capacity to around 113 mtpa by FY27 and further accelerate growth to reach its target of 140 mtpa by FY28,” says a report by financial advisory firm Emkay Global after the Penna deal was announced.
Clearly, valuation is not the only factor being taken into account for the Penna deal; 90% of Penna’s capacity comes with railway sidings, in addition to some of it being supported by captive plants and waste heat recovery systems. Most importantly, Penna has five bulk cement terminals, which aligns with the capabilities of the Adani Group. Effectively, it will allow the conglomerate to put its ports to good use, with cement moving through the sea route.
The earlier buyout of Sanghi Industries was similar. Housed in Gujarat’s Kutch region, it also has one bulk cement terminal in the state and another one in Maharashtra. That opens up not just the domestic market, but also an opportunity in the neighbouring Middle East. Ajay Kapur, CEO and wholetime director of Ambuja Cements, said in a statement after the Penna deal, that the bulk cement terminals “will prove to be a game changer by giving access to the eastern and southern parts of peninsular India, apart from an entry into Sri Lanka, through the sea route.” The objective is to make Penna Cement “highly competitive on cost and productivity, and improve its operating performance.” In FY23, Penna Cement witnessed a net loss of Rs 193 crore, while its revenue was Rs 3,150 crore, according to a report by brokerage firm Motilal Oswal.
Even the smaller buyout of My Home Group’s cement unit in April was in line with the sea route strategy. The deal, struck for Rs 414 crore, came with a grinding unit of 1.5 mtpa, but located in Thoothukudi in Tamil Nadu. A cement industry executive calls the high capex outlay on infrastructure an opportunity. “Obviously, those like UltraTech and Adani stand to gain with their manufacturing plants located across the country. Plus, the dedicated freight corridors could allow cement to be transported from markets like the south to central or north India,” he says. Looking ahead, Emkay Global’s report says consolidation will play a key role in boosting market share for major players.
“Short-term challenges may persist as players seek market share gains, but long-term consolidation—with larger players expanding organically and through acquisitions—is expected to improve pricing discipline and enhance profitability.”
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