Ambuja Cement is doing fantastic today morning; from its close of Rs.664.30, the stock opened 4% higher and went on to hit a life-time high at Rs.690 and is currently trading at Rs.681levels.

The stock price surged after the company announced that it has acquired 100% shares of Penna Cement Industries Ltd (PCIL) at a cost of Rs.10,422 crore. This is being acquired from its existing promoter group, Mr. P. Pratap Reddy and family and will be fully funded through internal accruals.

PCIL has 14 MTPA cement capacity, of which 10 MTPA is operational, and the remaining is under construction at Krishnapatnam (2 MTPA) and Jodhpur (2 MTPA) and will be completed within 6 to 12 months. Around 90% of the cement capacity comes with railway sidings, and some are supported by captive power plants and waste heat recovery systems. Further, surplus clinker at the Jodhpur plant will support an additional 3 MTPA cement grinding capacity over and above 14 MTPA.

The existing dealers of PCIL will move to Adani Cement’s market network to bring in formidable synergy.

As explained in our “Big Gems” section by our Editor, Mr. SP Tulsian, this acquisition accelerates company’s goal of 140 MT cement capacity by 2028, with present capacity of 79 MTPA rising by 17% to 93 MTPA in 6-12 months.

Ambuja Cement has cash rich balance sheet (Rs.24,300 cr), focus on capacity addition, margin expansion (Rs. 1,121 per MT EBITDA of FY24 guided to rise to Rs. 1,470 by FY28E) and lower-than-peers valuation. On 246.32 cr equity shares (post warrants), current m cap stands at Rs.1.64 lakh cr, with EV of Rs.1.39 lakh cr. Post the Penna acquisition, EV is just at USD 167 per MT, much lower than Ultratech (USD 258) and Shree Cement (USD 230), being comparable peers.