Adani Entry To Improve Fortunes Of India's Cement Sector, Say Analysts

Shares of market leader UltraTech Cement and best performer Shree Cement have declined following the Adani-Holcim India deal.

<div class="paragraphs"><p>Labourers stand after unloading cement bags from a freight train at Ghaziabad railway station on the outskirts of New Delhi. (Photo: Adnan Abidi/Reuters)</p></div>
Labourers stand after unloading cement bags from a freight train at Ghaziabad railway station on the outskirts of New Delhi. (Photo: Adnan Abidi/Reuters)

Billionaire Gautam Adani has agreed to buy Holcim Ltd.'s Indian subsidiaries in a $10.5-billion (over Rs 81,000-crore) deal.

Adani will acquire Holcim's stake in Ambuja Cements Ltd. (63.19%) at Rs 385/share and in ACC Ltd. (4.48%) at Rs 2,300 apiece. The acquisition will trigger an open offer, taking the overall purchase value to $10.5 billion. That implies an enterprise value of $163 a tonne, according to BQ Prime’s calculation.

Shares of ACC rose over 7% and Ambuja Cements advanced nearly 3.5% in early trading on Monday. The benchmark Nifty 50 was trading 1% higher at the time.

Brokerages view the deal as a positive for India's cement sector as they do not expect a fight for market share by cutting prices.

Here's what analysts made of Adani's acquisition of Ambuja Cements and ACC:


  • Adani's strategy would be keenly watched.

  • Premium valuations could mean higher targeted unit profitability.

  • Targets based on maintaining brand premium, savings from royalty reduction and other synergies. Retaining brand position is key for sustained profitability

  • Fight for market share by reducing cement prices is less likely.

Phillip Capital

  • Maintains 'buy' for ACC; revises target price from Rs 2,550 to Rs 2,850 (current market price: Rs 2,235).

  • Upgrades Ambuja Cement 'buy' from 'neutral', target price revised from Rs 410 to Rs 440 (current market price: Rs 367.90).

  • Adani emerges as the second largest player in Indian cement industry.

  • Adani now becomes a 70 million-tonnes-a-year capacity player, next only to UltraTech Cement.

  • ACC and Ambuja Cement become direct, identifiable individual promoter-controlled entities.

  • Adani has the potential to turn around the fortune of the whole industry, and not just theirs.

  • Upgrade target multiples for ACC from 13x to 15x and for Ambuja Cement from 16x to 18x.

Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Pvt. Ltd., the owner of BQ Prime.