The ‘grand’ entry of the Adani Group into the cement sector through the likely acquisition of Ambuja Cement Ltd. and ACC Ltd. from Holcim Ltd. will spur consolidation in the sector as the group is known for assuming market leadership in any segment it operates in said analysts.
However, industry insiders preferred to wait and watch before offering any comment.
“Over the longer term, we expect it [the $10.5 billion acquisition by Adani Family offshore Special Purpose Vehicle Endeavour Trade & Investment] to positively impact the cement sector with expectations of industry consolidation along with better pricing discipline,”Ronald Siyoni, AVP - research, Sharekhan by BNP Paribas said,
“The acquisition would place Adani Group at number two position in India’s cement sector. The high valuation ascribed to Holcim’s assets may lead to the acquirer opting for generating better returns vis-a-vis employing aggressive competitive behaviour,” Mr Siyoni added.
According to Kamlesh Bagmar, Deputy Head of Research, Prabhudas Lilladher both the companies [Ambuja & ACC] would become very aggressive on cost competitiveness and capacity expansion which had been missing in a big way over the years.
“This could increase competition in the industry, he said adding there is not much of consolidation opportunities of this magnitude left in the industry.
Under the deal with Holcim, Adani Group has agreed to pay 7.3% premium over the last trading price of Ambuja Cement and 8.8% premium over the last trading price of ACC which augurs well for the shareholders, analysts said.
Motilal Oswal in a note said the combined entity is expected to increase capacity to 80 million tonnes per annum 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 Bangur said, “We have to see their [Adanis] style of functioning for six months before commenting. They are new to the sector. But the management style of both companies will remain the same for some time.”
“Today, consolidation does not take place at the wish of the buyer, it happens if the seller wants. Yes, consolidation may happen if they [Adanis] pay a handsome amount to the sellers,” he added.
He said so far, most part of the dividend paid out by Ambuja and ACC used to go to Holcim and now that would remain in India.
He declined to quantify the impact on the sector by saying, “If Mr. Kumar Mangalam Birla could have acquired both the companies, we could have some predictability but we are yet to know Mr. Adani who is very new to the sector,” Mr. Bangur added.
Manoj Dalmia, founder & director, Proficient Equities Private Ltd. said, “Adani’s entry might
affect the 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 is making significant contributions to Indian infrastructure, which will benefit both Adani and ACC- Ambuja on demand prospects.”
According to Ravi Singh, vice-president and head of Research, Share India, the transaction would help both the companies to slash costs, trim debt and better cope with the soaring energy prices and weaker demand that have hurt the sector so far.
“Also, post the potential merger, there could be a consideration for brand consolidation leading to better margins and higher return on capital employed for the two companies,” Mr Singh said.
On Monday, the Adanis made open offer for acquiring additional shares of ACC and Ambuja Cement as per SEBI norms. While ACC shares gained 3.84% on the BSE, Ambuja Cement shares closed with a gain of 2.59%.
