Mumbai: Ambuja Cement, a part of the Adani Group, is set to acquire Penna Cement, based in Hyderabad, for ₹10,422 crore. This purchase will help Ambuja Cement boost its capacity and market presence in southern India.
In a filing with the stock exchange, Ambuja Cement announced it would buy 100% of Penna Cement from the current owners, P. Pratap Reddy and his family. Penna Cement has around ₹3,000 crore in debt, which includes various loans and deposits.
Out of the total price, Ambuja Cement will hold back approximately ₹3,500 crore. This amount will be paid later based on the completion of a 2 million tonne (MT) cement capacity and a 3 MT clinker facility at Penna’s Rajasthan plant, expected within a year.
Funding the Purchase
The acquisition will be funded through Ambuja Cement’s internal funds. With a capacity of 14 million tonnes per year, the valuation is about $89.15 per tonne. Sources say that Penna Cement’s surplus clinker facility in Rajasthan will allow an additional 3 MT capacity, lowering costs further.
Previously, the Adani Group acquired Sanghi Cement with a capacity of 6.1 MTPA at $100 per tonne.
Ambuja Cement has substantial cash reserves, totalling ₹24,338 crore, after receiving ₹8,339 crore from promoters in April 2024.
With this acquisition, the Adani Group’s total cement capacity will increase to 89 MTPA, moving closer to its goal of 140 MTPA by 2028. The acquisition is expected to increase Adani Cement’s market share by about 2% nationwide and by about 8% in southern India.
Strengthening Market Presence
Ajay Kapur, CEO of Ambuja Cement, stated, “By acquiring Penna Cement, Ambuja is set to expand in south India and strengthen its position as a leading cement producer across India.” He noted that Penna Cement’s location and ample limestone reserves offer opportunities to boost cement capacity through improved operations and additional investment.
Penna Cement’s bulk cement terminals will enhance access to eastern and southern India and provide a route to Sri Lanka by sea. Kapur added that these terminals will be crucial in making Penna Cement competitive in cost and productivity.
Penna Cement has a total capacity of 14 MTPA, with 10 MTPA currently operational. The rest, located at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA), should be completed in 6-12 months. The company operates in Andhra Pradesh and Telangana and has five bulk terminals in Kolkata, Gopalpur, Karaikal, Kochi, and Colombo, which support its logistics across peninsular India.
Financial and Operational Outlook
In October 2023, India Rating and Research downgraded Penna Cement’s debt rating from ‘IND A’ to ‘IND BBB+’ and placed it under negative watch. This downgrade was due to weaker-than-expected performance in the first five months of FY24, resulting in an EBITDA loss and worsening liquidity. The management is in advanced talks to sell its power assets, hoping to finalize the deal by the third quarter of FY24.
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