Adani Group: Price changes, scales, M&As in a mix. Invest in the ACC,

ET Intelligence Group: Adani Group’s acquisition of 63.11% stake in Holsim for 10 10.5 billion (approximately ₹ 81,361 crore) could change some of the key dynamics of India’s cement industry. First, it would make Adani Group the second largest cement producer with a combined capacity of 70 million tons (MT) after 120 MT. Second, Adani’s entry could affect price trends in the sector. Also, the possibility of further integration in the sector cannot be ruled out. For investors, it is understandable to invest in this and Ambuja stocks for the sake of scale.

Adani will pay ₹ 385 per share for Ambuja Cement and ₹ 2,300 per share for ACC, according to details shared by Holcim. This is a premium amount of 7-8% of their current market value. Analysts had estimated the premium to be higher than the current market price of ACC and Ambuja Cement.

Adding new cement capacity is time consuming. According to industry estimates, it takes about five years to install a capacity of 5 metric tons. So acquiring ACC-Ambuja capacity will give Adani Group access to sufficient power in one go. The cement business will complement Adani Group due to its presence in the infrastructure department. Acquiring the power of cement will give Adani Group the benefit of backward integration as cement is a major input for infrastructure business.

There is a growing perception among analysts that price trends in the industry may change in the near term. One analyst, speaking on condition of anonymity, said “Adani will be the second largest player in the sector with a strong distribution network and wide geographical presence. It has a strong potential to lead to aggressive prices in the industry.”

As of fiscal year 2021, ACC and Ambuja Cements together have approximately ₹ 19,276 crore in cash and cash equivalents. Besides, both the institutions are debt free. An analyst, speaking on condition of anonymity, said that if the book was paid in cash, Adani would not find it difficult to finance the deal. As of calendar year 2021, the combined cash flow of ACC and Ambuja Cement is over ₹ 5,000 billion. This will reduce the debt burden of Adani.