As the competition between Adani Group’s Ambuja and Aditya Birla Group’s UltraTech for dominance in the cement sector heats up, the south India market has become a battleground with multiple acquisitions at increasing enterprise value per tonne.
The latest acquisitions – Orient Cement by Ambuja and India Cement by UltraTech – have been at far higher valuations than the other recent buyouts as the two major players vie for the top spot in the core infrastructure sector.
While Ambuja’s deal with Orient has an enterprise value of Rs 8,100 crore at Rs 9,591 per tonne, Ultratech’s acquisition of India Cement is at Rs 9,831 per tonne. Both the deals have been at higher valuations than those before them – Penna Cement by Ambuja (EV of Rs 6,595/tonne) and Kesoram Cement by Ultratech (EV of Rs 7,587 per tonne).
“Ambuja Cements’ consolidated capacity in South India is likely to rise from ~10 million tonne in FY24 to ~27 million tonne by end-FY25E,” Elara Capital said in a report. This makes it’s the second-largest player in the south market.
However, it has a while to go before it closes the gap with industry leader UltraTech, which has around 50 million tonne per annum (MTPA) capacity in the south market (including India Cements and Kesoram capacities).
Analysts also pointed out that even with the higher EV/tonne, the Orient Cement acquisition is ahead in terms of asset quality. The CK Birla-promoted firm’s Ebitda/tonne as at the end of FY24 was Rs 733, compared to Rs 501 for Kesoram and Rs 115 for India Cements.
“Orient Cement has a coal-based thermal power capacity of 95 MW, 10 MW waste heat recovery system (WHRS) and 33 MW renewable energy, out of which ~20 MW is under commissioning. Also, its entire limestone reserves are at a nil premium,” Elara Capital analysts said.
Analysts added that Ambuja could see a potential to further improve operational efficiency through increased use of green power and domestic coal linkage, and support logistics cost optimisation with improved geographical footprints.
“For instance, Orient Cement’s Jalgaon unit in Maharashtra is likely to benefit from a reduction of Rs 150/tonne in clinker rail freight by clinker source swapping with Adani Cement’s existing footprints,” they observed.
With its highly fragmented structure and infrastructure boost, the south Indian market has emerged as a lucrative one for cement makers looking to expand manufacturing capacities and market share.
Most of the significant acquisitions since Adani’s entry into the segment in 2022 have been concentrated in the south, or have been companies with significant capacities in the region.
As a result, the wagon wheel for Ambuja’s region-wise capacity has also seen a shift from FY24 with the south market taking the lead in terms of capacity by FY25 end. In FY24, the north dominated the company’s capacity with a share of 28% while south had a share of 14%. By the end of FY25, analysts expect the south to contribute 26% while the north’s contribution is expected to be around 21%.
For Ultratech, too, the south will become the dominant contributor to its overall capacity at the end of FY25. In FY24, the north contributed almost 24% of its pan-India capacity while the south accounted for 14.5%. Post the integration of Kesoram, and accounting for the capacity that India Cement acquisition brings, the south market’s contribution to UltraTech’s domestic capacity footprint is expected to be nearly 28%.
As the consolidation wave continues, which started when Adani acquired Ambuja and ACC from Holcim in 2022, the market share concentration with the top five players has also been increasing and is expected to rise to 64% from around 50% in FY20.
“The consolidation is most stark in South where the top 4 would now have 62% capacity share versus 39% in FY24. The quest for inorganic growth is likely to continue and lead to further consolidation,” analysts from Kotak Institutional Equities observed.
In the south, Deccan Cements and Sagar Cement could be lucrative acquisition targets with capacities of 7.98 MTPA and 1.8 MTPA, respectively.
From: financialexpress
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