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Adani Group’s Ambuja-ACC buy: Expensive valuation means significantly higher profits required to maintain decent ROE

Adani's Ambuja-ACC acquisition will need to make nearly 33% more profit per tonne compared to greenfield projects and 120% more profit per tonne compared to brownfield expansion

May 16, 2022 / 02:28 PM IST
With profitability crucial, the brokerage does not see the Adani acquisition getting into a price war with competitors to gain market share. (Photo by Life Of Pix/Pexels)

With profitability crucial, the brokerage does not see the Adani acquisition getting into a price war with competitors to gain market share. (Photo by Life Of Pix/Pexels)

Becoming the second-largest cement player in the sector hasn’t come cheap for the Adani Group. For Holcim’s stake in Ambuja and ACC, the group has paid $10.5 billion, which implies an EV/T of $164/tonne. This is the highest amount paid for a cement deal in the last few years. Ultratech Cement paid $150/tonne for Binani Cement in 2018. 

Now, the new cement major will need to work on protecting its margins.

It may have to stick to the premium end of the market to deliver double-digit ROE and ROCE.

Greenfield and brownfield projects need to make an EBITDA/T of Rs 1,500 and Rs 900 respectively to deliver ROE and ROCE of 10.6%, according to a Jefferies report. The Adani Group entity will need to make an EBITDA/T of Rs 2,000 to get similar margins – of an ROE of 10.8% and an ROCE of 10.7%, it added.