Tue Oct 22 17:16:34 UTC 2024: The cement industry is witnessing continued consolidation, with notable developments occurring despite a weaker sector outlook. Ambuja Cements, part of the Adani Group, has signed a share purchase agreement to acquire a 46.8% stake in Orient Cements for ₹394.5 per share, a 12% premium to its recent closing price, valuing Orient at ₹8,100 crore. This acquisition is set to trigger an open offer for an additional 26% stake from the public.
Orient Cement operates at an 8.5 MTPA capacity, making the deal’s valuation around $113 per tonne, above typical mid-sized cement company valuations of $90-$100 per tonne. Other recent acquisitions in the sector, such as Ultratech’s purchase of Kesoram Cements and India Cements, reflect valuations between $80 and $122 per tonne.
The premium for Orient Cement is attributed to several factors: a consolidation trend in the industry, Orient’s successful business performance with an expected moderate growth in revenue and margins, and its potential expansion to 16.6 MTPA.
Cement prices have dropped 10% year-to-date, but a recovery is anticipated post-monsoon in H2FY24. While Orient reported a 15% decline in volume year-over-year, Ambuja showcased a 3% increase. The cement sector faces challenges with rising costs, as indicated by Ultra Tech’s recent revenue and profit declines.
Looking forward, Ambuja plans to expand its capacity from 100 MTPA to 140 MTPA by 2028, while Ultratech aims to increase from 150 MMT to 200 MMT by FY27. Overall, while current market conditions are tough, longer-term prospects are viewed favorably for established players.
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