Ambuja Cements Can Bolster South Foothold With Orient Acquisition, Says Nomura

Ambuja Cements Ltd.'s acquisition of Orient Cements Ltd. could accelerate consolidation in the industry and will help the Adani Group's cement arm to hit the 140 million tonnes annual capacity target by 2028, according to brokerages.

Ambuja Cements announced the acquisition of Orient Cement at an equity value of Rs. 8,100 crore as part of its expansion spree. This acquisition will add 16.6 million tonnes to Ambuja Cements' annual capacity, the cement maker said in an exchange filing on Tuesday. It will be fully funded through internal accruals.

Ambuja's plan to increase cement and clinker capacity post the acquisition could help it secure 12% capacity share in south India versus the current 10%, Nomura said in a note. "We believe the inorganic expansion will still play an important role in Ambuja’s future growth."

Nomura maintained 'buy' with a target price of Rs 760 apiece, a 35% upside from the previous close. The cement maker has further strengthened position in southern India and will double acquired capacity with the Orient deal, it said.

Excluding the Orient acquisition, the Adani Group-owned cement manufacturer will register a capacity CAGR of 18% versus 9% for industry leader UltraTech Cement Ltd., Nomura said.

The newsflow is positive for Ambuja Cements and the industry at large, Morgan Stanley said in a report after the acquisition.

The brokerage expects accelerated consolidation in the cement industry to remain a key theme. The acquisition will help Ambuja's journey to 140 MT capacity target by 2028, the brokerage said.

Morgan Stanley maintains 'overweight' on the Ambuja with a target price of Rs 775 per share, an upside of 38% from the previous close.

The rebranding for the CK Birla Group's Orient Cement should help increase its Ebitda per tonne, Citi Research said. However, it said that they are unsure about its future growth based on status of current limestone mines.

Ambuja Cements continues delivering on growth plans, following its Penna and Sanghi acquisitions, Citi said.

Citi maintains 'neutral' on the stock with a target price of Rs 685 apiece , a 22% upside from the previous close.