The CK Birla Group is selling a 46.8% share in Orient Cement Ltd (OCL) to Ambuja Cement, a division of the Adani Group. The Rs. 8100 crore contract is a significant step for Ambuja to increase its market share in the Indian cement industry. With this acquisition, the company will reach 100 MTPA by FY25 and increase its pan-India market share by 2%.
Deal Details and Financials
Ambuja will buy shares from OCL’s current promoters and certain public shareholders. The deal will be fully funded from internal accruals. Ambuja will also make an open offer to buy another 26% of OCL’s equity shares at Rs.395.40 per share as per SAST regulations. This open offer will be completed within 3-4 months.
Share Prices
After the announcement both the stocks rose. As of 9:20 AM on the day of the announcement Ambuja Cement was up 1.49% at 580 and Orient Cement was up 1.65% at 358.25.
Why this Acquisition
Karan Adani, Director of Ambuja Cements said this is a big step in the company’s growth journey. Orient Cement will add 16.6 MTPA to Ambuja’s total cement capacity. OCL’s plants are strategically located and have high quality limestone reserves which can be used to increase capacity in short term. OCL’s current clinker capacity is 5.6 MTPA and cement capacity is 8.5 MTPA. Statutory clearances are already in place to increase these capacities by 6.0 MTPA for clinker and 8.1 MTPA for cement.
Ambuja Cement’s Growth Plan
This acquisition is part of Adani Group’s larger plan to become a big player in Indian cement industry. Adani which already has presence in infrastructure, energy and logistics is leveraging synergies across these businesses to reduce cost in cement business.
Adani entered cement business last year when it acquired Ambuja Cements and ACC Limited from Switzerland’s Holcim Group for 10.5 billion dollars. This made Adani the second largest cement player in India after UltraTech Cement of Aditya Birla Group. Since then the company has been expanding its cement footprint.
In August 2023, Ambuja Cement acquired Sanghi Industries for Rs. 5000 crore and added 6.1 MTPA to its capacity. Sanghi acquisition was to expand its market presence in western India and to strengthen its product portfolio. Sanghi Industries has India’s largest single location cement and clinker plant in Kutch, Gujarat.
Competition in the Cement Sector
Orient Cement’s acquisition by Ambuja Cements will increase the competition between Adani Group and Aditya Birla Group which controls UltraTech Cement, India’s largest cement company. UltraTech recently acquired 32.72% stake in India Cement from N Srinivasan family for Rs. 3945 crore.
Both Adani and Birla groups are on an acquisition spree in cement sector as the growth potential in India’s infrastructure development is huge. UltraTech has a current capacity of 146 MTPA and is the largest player in the Indian market. With Orient Cement, Ambuja Cements will reach 100 MTPA by FY25 and will narrow the gap between the two giants.
OCL’s Existing Assets and Growth Potential
Orient Cement has well established infrastructure which is in line with Adani’s existing businesses. OCL has railway sidings, captive power plants, renewable energy sources, Waste Heat Recovery Systems (WHRS) and Alternative Fuel Resources (AFR) facilities. These are essential for operational efficiency and cost management. OCL has limestone mining lease in Chittorgarh, Rajasthan which will enable Adani Group to set up an integrated unit of 4 MTPA clinker and 6 MTPA split grinding unit in North India.
OCL has also got concession from Madhya Pradesh Power Generating Company Limited (MPPGCL) to set up grinding unit within the premises of Satpura Thermal Power Plant. These projects will complement Adani Group’s existing cement business. In terms of renewable energy, OCL has commissioned WHRS in Chittapur unit and is in final stage of commissioning 16 MW solar power in Chittapur and 3.7 MW in Jalgaon. OCL’s existing dealer network will also integrate with Adani Cement’s market channels and will create significant synergies.
Broader Industry Trends
Indian cement sector has seen steady growth over the last few years driven by infrastructure and residential construction demand. Cement prices have grown at 4% CAGR over the last 4 years and reached an all time high of Rs. 391 per 50-kg bag. But analysts at Crisil expect this trend to reverse slightly in this financial year due to increasing competition and softening of input costs. Cement prices are expected to decline by 1-3% in the next year.
Despite these market dynamics, Adani Group is optimistic about long term growth of Indian cement industry. Government’s focus on infrastructure development roads, ports, airports, housing will drive cement demand in the next few years. Adani Group is positioning itself to benefit from this growth by building large, efficient and geographically diversified cement business.
Conclusion
The Adani Group has strategically decided to strengthen its presence in the Indian cement market by buying out Orient Cement from Ambuja Cements. Ambuja Cements will get additional capacity, increase its presence in key areas and leverage synergies with Adani’s other companies. In the coming years the Indian cement market will see more consolidation and growth as the battle between Adani Group and UltraTech Cement intensifies.