Ambuja Cements - Penna To Improve Southern Exposure: Prabhudas Lilladher

Prabhudas Lilladher Report

Ambuja Cements Ltd. is set to acquire 100% shares of South based unlisted Penna Cement Industries Ltd. at an enterprise of Rs 104.2 billion. Incorporated in 1991, Penna Cement has 10 mtpa operational cement capacity in Andhra Pradesh (5.8 mtpa IU), Telangana (3.2 mtpa IU) and Maharashtra (1 mtpa GU) along with 7.3 mtpa clinker capacity.

It also has 2 mtpa under construction capacities at AP and Jodhpur each along with 3 mtpa clinker capacity which can be commissioned over next six-12 months.

As this EV includes cost of completion of under construction projects, considering unspent capex of ~Rs 16 billion, EV/t works out at ~$76/tonne. The deal will give Ambuja Cement an entry into new Southern markets - mainly AP and Telangana where the company has no material presence and both states are expected to benefit from recent regime change. It also complements Ambuja Cements’ portfolio with five port based bulk terminals in South and East India which would aid Ambuja Cements to supply undersupplied markets immediately.

With strong balance sheet and remarkable execution speed, we believe Ambuja Cements' consolidated performance would improve substantially going forward. We expect Ambuja Cements to deliver incremental 5-6 mt volumes from Penna Cement assets in FY26 once the deal gets consummated over next few months.

We have not yet incorporated Penna Cement intoAmbuja Cements estimates however with Proforma P&L, Ambuja Cements FY26E Ebitda gets upgraded by 11% with ~6mt volumes and target price can see additional ~Rs 40 hike.

We have tweaked our estimates post incorporating FY24 annual report and maintain Accumulate with revised target price of Rs 697 (Rs 683 earlier) on the stock. Stock trades at EV of 17.2 times and 13.6 times FY25E/26E Ebitda.

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