Emkay retains 'Buy' recommendation on Ambuja Cements after Penna Cement acquisition

New Delhi [India], June 14 (ANI): Soon after Ambuja Cements announced the acquisition of Penna Cement, brokerage emkay-global-financial-services">Emkay Global Financial Services retained its 'Buy' recommendation on the Adani Group-owned cement producer.
"We maintain our preference for Ambuja, given its strong growth/capex plans, pan-India presence, and robust balance sheet...," the brokerage said in a report.
The brokerage retains the 'Buy' recommendation with a target price of Rs 700 per share by March 2025. At the time of filing this report, the shares of Ambuja Cements traded at Rs 676.30, up 1.8 per cent.
"Short-term challenges may persist, as players seek market-share gains, but long-term consolidation--with larger players expanding organically and through acquisitions--is expected to improve the pricing discipline and enhance profitability," Emkay said.
"Also, small/midcap cement company stocks are likely to remain in momentum owing to ongoing news flows on M&As (merger and acquisitions)," the brokerage report added.
On Thursday, Ambuja Cements announced that it has decided to acquire 100 per cent shares of Penna Cement Industries Limited. Penna Cement to now become wholly owned subsidiary of Ambuja Cements.
Acquiring Penna Cement will increase Ambuja Cements' presence in India, particularly in South India, besides making way to markets in neighbouring Sri Lanka, the Adani Group cement company said in a presentation explaining the rationale behind the acquisition.
The transaction has an enterprise value of Rs 10,422 crore. The cement maker said that the transaction would be fully funded through internal accruals.
The transaction included acquisition of 14.0 million tonne per annum cement capacity. Under construction 4.0 MTPA cement capacity at Jodhpur IU and Krishnapatnam GU to be completed by the seller.
The acquisition will help to accelerate Ambuja Cements' journey to 140 MPTA production by 2028.
With the acquisition of Penna, Adani Cement's operational capacity is now 89 MTPA. The remaining 4 MPTA under construction capacity will be operational in 12 months.
PCIL has 14 MTPA cement capacity, of which 10 MTPA (Millions of Tonnes Per Annum) is operational, and the remaining is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and will be completed within 6 to 12 months.
This acquisition, according to Adani Cement, will also fast-track the capacity that was otherwise was planned as a greenfield expansion. It is expected that the South India market share to improve by 8 per cent to 15 per cent and the Pan India market share to improve by 2 per cent.

Penna has surplus land and limestone reserves available at integrated units to set up additional clinker lines. It is a scope for Adani Cement to debottleneck and further improve capacity at marginal investment, the cement maker said. (ANI)