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ICICI Securities Report
On the face of it, the acquisition of Sanghi Industries Ltd. by Ambuja Cements Ltd. comes across as industry consolidation. However, we view it as a catalyst to start price war in West India given –
Sanghi Industries' sales volumes stand at just 2-2.5 million tonnes per annum as against cement capacity of 6.1 million tonnes per annum and clinker capacity of 6.6 mtpa;
with Adani Group's expertise in port logistics and Ambuja Cement's strong brand presence in West India, we see huge scope for Ambuja to run Sanghi Industries units at optimal capacity.
In fact, Ambuja Cements' has already announced plans to scale Sanghi Industries capacity to 15 mtpa within just two years.
With high odds of rise in price competition, we stay cautious on the sector. As for Ambuja Cements, the deal comes at a lucrative valuation (implied enterprise value/tonne of $73) and hence, we upgrade the stock to 'Add' ('Hold' earlier).
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