Adani Group’s ‘magnificent’ entry into the cement sector through the probable acquisition of Ambuja Cement Ltd. and ACC Ltd. by Holcim Ltd. will drive consolidation in the sector as the group is known for being market leaders in every segment in which it operates, according to said analysts.
However, industry insiders preferred to wait and watch before commenting.
“In the long term, we expect that to happen [the $10.5 billion acquisition by Adani Family offshore Special Purpose Vehicle Endeavour Trade & Investment] to positively impact the cement sector with anticipation of industry consolidation along with better pricing discipline,” said Ronald Siyoni, AVP – Research, Sharekhan of BNP Paribas,
“The acquisition would make the Adani Group number two in the Indian cement sector. The high valuation attributed to Holcim’s assets may lead the acquirer to opt for achieving better returns rather than engaging in aggressive competitive behavior,” added Mr. Siyoni.
According to Kamlesh Bagmar, Deputy Head of Research, Prabhudas Lilladher of both companies [Ambuja & ACC] would become very aggressive in terms of cost competitiveness and capacity expansion, which had been largely lacking over the years.
“This could increase competition in the industry,” he said, adding that there aren’t many consolidation opportunities of this magnitude left in the industry.
As part of the agreement with Holcim, Adani Group has agreed to pay a 7.3% premium on Ambuja Cement’s last trade price and an 8.8% premium on ACC’s last trade price, which bodes well for shareholders , analysts said.
Motilal Oswal said in a note that the combined company is expected to increase capacity to 80 million tons per year by CY24E [from 70 million tonnes now.
“We would wait for announcement related to the funding of this deal. In our view, the acquirer will not chase growth capex immediately if it is a leveraged buy-out. In the long run, however, sector dynamics would depend on the growth plans and aggressiveness of the acquirer,” the Motilal Oswal analysts wrote in the note.
The Adani Group had been planning to enter the cement business for some time and it had formed a separate subsidiary called Adani Cement Industries Ltd. in June 21.
The company was reportedly planning to set up an integrated plant in Kutch, Gujarat and grinding units in Dahej, Gujarat and Raigad, Maharashtra.
It also had won limestone blocks in Andhra Pradesh, Rajasthan and Gujarat through bidding process.
This was prior to Sunday’s significant announcement. And now, the sudden entry into the big league had changed the industry dynamics.
Industry insiders, though taken aback by the aggressive bid by Adani, preferred to restrain themselves from commenting.
UltraTech Cement & JSW Cement declined to comment on the likely impact of Adani’s entry into the sector. A call made to India Cements vice chairman & MD, N Srinivasan remained unanswered.
However, Shree Cements Ltd. chairman BG Bangar said, “We have to see their [Adanis] Working for six months before commenting. You are new to the industry. But the management style of both companies will remain the same for some time to come.”
“Today, consolidation does not happen at the request of the buyer, but at the request of the seller. Yes, consolidation can happen when they [Adanis] pay the sellers a hefty sum,” he added.
He said so far most of the dividend paid by Ambuja and ACC has gone to Holcim and now that would stay in India.
He declined to quantify the impact on the sector, saying: “If Mr Kumar Mangalam Birla could have acquired both companies we would have some predictability but we have yet to know Mr Adani who is very new to the industry said Mr Bangur added.
Manoj Dalmia, Founder and Director of Proficient Equities Private Ltd. said: “Adani’s entry could
Influencing pricing in the cement sector due to its power as a supplier.” Ravi Singhal, Vice Chairman, GCL Securities Ltd. “As we can see, ACC and Ambuja are steadily losing market share. However, the Adani Group is very aggressive and makes significant contributions to Indian infrastructure that will benefit both Adani and ACC-Ambuja on-demand prospects.”
According to Ravi Singh, Share India’s vice president and head of research, the deal would help both companies cut costs, reduce debt and better cope with the rising energy prices and weaker demand that have hitherto hurt the sector.
“Additionally, post-merger branding consolidation could be considered, which would result in improved margins and return on investment for the two companies,” said Mr. Singh.
On Monday, the Adanis made an open offer to acquire additional shares in ACC and Ambuja Cement under SEBI norms. While ACC shares rose 3.84% on the BSE, Ambuja Cement shares closed up 2.59%.