Ambuja Cements' Acquisition Of Penna Cement Matches Greenfield Project Costs, Says Citi

The recent acquisition of Penna Cement Industries Ltd. by Ambuja Cements Ltd. is valued comparably to the construction cost of a new greenfield cement project, according to Citi Research. The estimated transaction enterprise value per tonne is $93, a figure that closely aligns with greenfield replacement costs, the brokerage firm noted.

Ambuja Cements announced on Thursday its complete acquisition of Hyderabad-based Penna Cement for an enterprise value of Rs 10,422 crore, aiming to strengthen its presence in southern India.

Penna Cement currently has a cement capacity of 14 million tonne per annum, with 10 MTPA already operational. The remaining capacity is under construction across Andhra Pradesh, Telangana, and Rajasthan, expected to be completed within the next six to twelve months, according to a statement to the exchanges.

Approximately 90% of Penna Cement's capacity benefits from railway sidings, complemented by captive power plants and waste heat recovery systems. An additional 3 MTPA cement grinding capacity is anticipated at the Jodhpur plant, augmenting the existing 14 MTPA capacity, the statement said, adding that Adani Cement's total capacity will reach 89 MTPA, supporting its target to achieve 140 MTPA by 2028 after the acquisition.

The implied total enterprise value of the transaction, assuming a capex of $25 per tonne for grinding capacity in the north, is close to Rs 12,700 crore for an expanded capacity of 16.5 MT, Citi said in a research note.

Homegrown brokerage firm Emkay Research suggests a favourable valuation of $89 per tonne for the deal, potentially decreasing to $79 per tonne with the planned grinding capacity expansion of 3 MTPA. Meanwhile, Nuvama Research places the enterprise value per tonne at $85, accounting for potential capacity expansion to 17 MTPA.

Penna Cement has allocated Rs 1,600 crore for its north India expansion and Rs 200 crore for a 2 MTPA grinding capacity at Krishnapatnam, Andhra Pradesh, according to India Ratings and Research.

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