Ambuja Cements: Will the ‘cheap’ acquisition of Penna Cement make this Adani stock attractive

Adani Group-owned Ambuja Cements Ltd announced the acquisition of a 100 per cent stake in Penna Cement Industries (PCIL) for an enterprise value of Rs 10,400 crore for its 14mtpa of cement grinding capacity and 10.3mtpa of clinker capacity. The brokerage firm believe that this acquisition is done a cheap valuation and may make Ambuja Cement as attractive bet.

Systematix Institutional Equities views this deal, which is valued at $89 per tonne (assuming enterprise value includes the completion of 4 mtpa), as value-accretive and cheaper than the recent acquisition of Sanghi. Further, surplus clinker can support an additional 3 mtpa of grinding capacity which may be setup at $30-35 million tonne and makes it more attractive, it said.

“Ambuja Cement has surplus clinker at its Jodhpur plant which will support additional grinding of 3 MT. Implied valuation for 17 MT clinker-backed capacities would work out to $85 per tonne, which seems value accretive, in our view,” said Antique Stock Broking.

Following the announcement, shares of Ambuja Cements surged more than 3.85 per cent to Rs 690 during the trading session on Friday, commanding a total market capitalization of more than Rs 1.70 lakh crore. The scrip had settled at Rs 664.30 in the previous trading session.

While PCIL has been facing liquidity issues, a potential turnaround (similar to Sanghi acquisition) can enhance the value for Ambuja Cements. At the same time, utilisation ramp-up at PCIL shall bring in additional volumes to the market and intensify competition, said Nuvama Institutional Equities.

The market participants are expecting this acquisition to be completed in a period of 3-4 months and is fully funded through internal accruals. This will increase the capacity of Adani Cement to 89 MTPA (further to 93 MTPA) from the current 79 MTPA. This is in line with Adani Cement’s previously stated target of reaching 140 MTPA by 2028, they say.

Penna Cement has 60 per cent of its current capacity in Andhra Pradesh, 30 per cent in Telangana, and remaining 10 per cent in Maharashtra. Experts believe that the acquisition will increase Ambuja Cement’s dominance in the southern region as its capacity share would increase to 20 per cent from the earlier 10 per cent.

“We like Ambuja Cement for its healthy capex plans and measures to lift cost efficiency,” said Nuvama with a ‘buy’ rating and a target price of Rs 767 on FY26E EV/Ebitda of 18 times. It sees about 16 per cent upside in the stock from its previous close.

“The acquisition will strengthen Adani Cement’s Sea transportation logistics with five bulk cement terminals at Kolkata, Gopalpur, Karaikal, Kochi, and Colombo to MD serve peninsular India. We expect the strategic geographical presence and clinker and limestone resources of Penna to complement Ambuja’s growth plans well,” said Systematix with a ‘hold’ rating and a target price of Rs 652.

“We are yet to factor the transaction into our estimates given regulatory approvals are still awaited. We maintain a ‘buy’ rating with an unchanged target price of Rs 700 based on 17 times FY26 consolidated EV/Ebitda,” Antique added in its latest report.

Ambuja Cement is focusing on further cost reduction by increasing the share of green power and AFR, engaging in long-term procurement strategies for critical raw materials, and optimizing logistics. A successful execution of these plans could result in a positive surprise, said Motilal Oswal Financial Services, which has a ‘neutral’ rating on the stock with a target price of Rs 640.

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