Adani Cement Tuesday announced the buyout of CK Birla Group’s Orient Cement at an equity value of ₹8,100 crore, intensifying the war for market share in a highly regionalised and freight-intensive building materials industry that’s the world’s second biggest – by both consumption and installed capacity.
This is the third deal in the cement industry in India in the current fiscal, with about 34 million tonnes of capacity changing hands in favour of the two market leaders: UltraTech Cement and Adani Cement.
Ambuja Cements will acquire the promoter’s 37.90% stake in Orient Cement, and an additional 8.90% from the company’s public shareholders, at ₹395.40 a share.
The company will then launch an open offer to acquire another 26% in the company at the same price. The transaction will be funded entirely through internal accruals.
“The deal is working out to a value of around $114 per tonne,” said Ravi Sodah, analyst, Elara Securities. “The price is higher than that paid for Sanghi and Penna, but in line with the India Cement deal,” he said.
Multiple Suitors
In July, CEO Ajay Kapur had said that there is no “frenzy” in the industry, and that expansion is happening in a structured manner. He said the cost of acquisition for both Sanghi Industries and Penna Cement was below $90 per tonne.
“Our internal target for new growth is less than $80/tonne. In fact, the target given to the operating team is to further drive it down by another $5-10,” he had said then.
Apart from Adani, Kumar Mangalam Birla-led UltraTech Cement and Sajjan Jindal-led JSW Cement were also in the race to acquire Orient Cement. In October 2023, ET reported that chairman CK Birla had reached out to Adani Group chairman Gautam Adani to sell his stake in the firm. “This timed acquisition marks another significant step forward in Ambuja Cements’ accelerated growth journey, increasing cement capacity by ~30 MTPA within two years of acquisition,” said Ambuja Cements director Karan Adani.
While there has been an interest in the assets of Orient Cement from multiple players for a long time, ultimately, the buyer was identified based on the value and what would suit our stakeholders the best, CK Birla Group’s chief financial officer Madhavan H told ET.
3 operational units
Orient Cement currently has three operational units across Maharashtra, Telangana and Karnataka, with a total production capacity of 8.5 million tonne (mt), and statutory clearances to increase production capacity by another 8.1 mt. It also has high-quality limestone reserves at Chittorgarh, Rajasthan, where an additional 6 mt of capacity can be set up.
Public shareholders whose stake Ambuja Cements will be acquiring include Rukmani Birla Educational Society, Shri Jagannath Educational Institute, and a few other trusts. These are not a part of the promoter group, Madhavan of the CK Birla Group clarified. Subject to approval from the Competition Commission of India, Adani Cement plans to complete the acquisition in three-four months.
Capturing growth synergies
“OCL’s strategic locations, high-quality limestone reserves and requisite statutory approvals present an opportunity to increase cement capacity in the near term to 16.6 MTPA,” Karan Adani said.
The buyout of Orient Cement is not only expected to strengthen Adani Cement’s market share by another 200 basis points, but will also help bring down its freight costs, the company said in its investor presentation.
Source: Economic Times