Ambuja Cements is going to acquire a controlling stake in Orient Cement Ltd. for ₹ 8100 crore, as the Adani group company announced in its Exchange Filing on 22 October 2024. This merger and acquisition will help Ambuja Cements boost its production capacity by 16.6 MTPA and achieve its target production capacity of 140 MTPA by 2028.
Details of the Acquisition
Ambuja Cements Ltd. will be acquiring a 46.8% stake in Orient Cement initially from the present promoters of the company and also from the existing shareholders. The entire acquisition will be funded using internal accruals and no debt will be taken, to retain the debt-free nature of the cement giant.
The share price for acquisition has been set at ₹ 395.4 per share which is 12% higher than Monday’s closing price of Orient shares, this means the acquisition will be done at a premium.
Apart from these, there will be an open offer as well in which Ambuja will acquire 26% of the equity shares outstanding from public shareholders or 5.34 crore shares at the same price of ₹ 395.4 per share.
The current shareholding pattern of Orient Cement (as per September Data) includes a 13.38% stake of Indian domestic mutual funds, a 1.55% stake of Shri Jagannath Educational Institute, then a 1.47% stake of Sri Govinddeo Educational Institute and others. The current shareholding pattern has 37.9% stakes of promoters in the company as well.
Production Capacity Boost
By leveraging the high-quality limestone reserves of Orient Cement Ltd. in Rajasthan, Ambuja Cements is planning to rave up its overall production capacity by 6 MTPC in North India. It will be done by mining the high-quality limestone present in Chittorgarh in Rajasthan. Apart from these, the total capacity of the cement giant can be increased by 16.6 MTPA out of which 8.5 MTPA will be operational and the remaining 8.1 MTPA capacity will be executed soon.
With the increase in capacity, the market share of the Pan India cement industry of Adani Group will also increase by around 2%. It will improve the cement footprint of Ambuja and also help in reducing the lead distances and cost of logistics.
On the other hand, Orient Cement has secured a concession for setting up a 2 MTPA cement grinding unit from Madhya Pradesh Power Generating Company. This facility will be established on the premises of Satpura Thermal Power Station which is located in Sarni.
Share price movement
After the intimation to the Exchange, the share price of Ambuja Cements jumped and opened on a higher note, and a similar pattern was seen for Orient Cement. However, both stocks were trading flat late in the day.
Ambuja Cements shares have declined 12.07% in the past six months, while during the same period, Orient Cement shares gained a whopping 67.22%. Today, both the cement stocks are flat. The Ambuja Cement acquisition also inflicted a positive sentiment around the Adani group share price, which is also in the green today though trading flat after trading in the red for the past month.
Conclusion
This cement industry merger and acquisition is going to be one of its kind as post this, not only Ambuja Cements will have better positioning in the market, but the entire cement industry will benefit from increased production capacity and reduced costs.
Source: CNBC TV18
______________________________________________________________________________________
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.