Adani Group's latest acquisition of Penna Cement in south India does not change its position in the pecking order of cement players, where it is second to market leader UltraTech Cement. However, the move underscores the conglomerate's aggressive push towards the southern region where the market is still fragmented, and strengthening its position could enable the company to fully capitalise on the region's growth prospects.
Industry experts expect significant infrastructure investments in the region, driving robust demand for cement.
Adani-owned Ambuja Cement, on June 13, announced a $1.25 billion deal to acquire Hyderabad-based Penna Cement, which holds a strong position in Andhra Pradesh and Telangana through its extensive distribution network and production capacity.
Increased focus on south India expansion comes as the region is experiencing significant infrastructure development, including highways, bridges, airports, and metro projects.
Moneycontrol explains how the Adani Group stands to benefit from its latest deals in the region.
What are the Adani Group's latest acquisitions in the region?
In April, Ambuja Cements signed an agreement to acquire a grinding unit in Tamil Nadu for Rs 413.75 crore. This acquisition enabled greater distribution efficiency amid rising demand for cement in the region.
In its second acquisition since then, Ambuja Cements bought the 100 percent stake in Penna Cement Industries Ltd for Rs 10,422 crore. The deal not only expanded the group's presence in South India but also provided access to the Sri Lankan market.
Why are cement companies betting big on south India?
Southern states such as Tamil Nadu, Karnataka, Andhra Pradesh and Telangana are experiencing significant urban growth, with cities expanding rapidly and new residential, commercial, and industrial projects coming up. The region is undergoing extensive infrastructure development, including highways, bridges, metro systems, and airports, which drive a substantial demand for cement.
Moreover, the south Indian cement market is relatively fragmented, offering opportunities for consolidation and market share growth for established players.
What are the key advantages for Adani Group from the Penna buy?
The Penna acquisition would impart substantial strength to Ambuja Cements to serve peninsular India at the most optimum logistic costs, according to Adani Group's investor presentation published on June 14. PCIL's five bulk cement terminals at Kolkata, Gopalpur, Karaikal, Kochi and Colombo would aid Ambuja to serve peninsular India.
"This (Penna) acquisition gives ACEM an entry into new southern markets – mainly Andhra and Telangana where ACEM has no presence and both states are expected to benefit from recent regime change," a Prabhudas Lilladher analyst wrote in a note.
Meanwhile, sufficient limestone reserves will help Ambuja to be cost-competitive but analysts warn that the acquisition may be margin-dilutive in the medium term.
How will the deals help the group's ambitions to become a market leader?
The latest deals have helped accelerate the group's target to reach 140 million tonne per annum by FY28. The Penna acquisition adds 14 MTPA capacity and provides the potential to expand an additional 3 MTPA with surplus clinker in Jodhpur IU, according to the presentation.
The deal will take Adani Cement's operational capacity to 89 MTPA. The remaining 4 MTPA under construction capacity will be operational in 12 months. This is over and above the ongoing expansions. The group expects the capacity to reach 96 MTPA by the end of this fiscal and 110 MTPA by FY26.
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