With Penna acquisition, Gautam Adani’s cement business gets a fresh layer

For the Adani Group, cement is a core business today. In less than three years, the conglomerate has moved from almost nothing to a total capacity of 75 million tonnes per annum (mtpa), making it the second-largest player after UltraTech Cement at 140 mtpa.

The interesting part is that most of the growth has been inorganic, starting with the big-ticket $10.5 billion transaction to acquire Ambuja Cements and ACC. The most recent one being a complete buyout of Hyderabad-based Penna Cements for Rs 10,420 crore, which comes with a capacity of 10 mtpa and another 4 mtpa that is under construction.

Once the deal is closed, the Adani Group’s cement business will have a total capacity of 89 mtpa. Its stated ambition is to hit 140 mtpa by 2028, while market leader UltraTech Cement is eyeing a capacity of 200 mtpa.

From a strategic point of view, the picking up of Penna Cement (through Ambuja Cements) gives the group a stronger presence in south India, a market that has historically witnessed low capacity utilisation.

Of the existing capacity, 90 per cent comes from the states of Andhra Pradesh and Telangana and the rest being accounted for by Maharashtra.

The upcoming capacity will come up in Krishnapatnam in Andhra Pradesh and Jodhpur in Rajasthan. The deal also comes with limestone capacity, the details of which have not been revealed. “Along with its ongoing expansion plans, Ambuja Cements targets increasing capacity to around 113 mtpa by FY27 as well as accelerating growth to achieve its target of 140 mtpa by FY28,” says a report put out by Emkay Global after the deal.

Clearly, the consideration has not just been valuation since 90% of Penna’s capacity comes with railway sidings apart from a part of it supported by captive plants and waste heat recovery systems. Most importantly, Penna has five bulk cement terminals, which sits well with what the Adani Group has. Effectively, it allows the conglomerate to put its ports to good use with cement moving through the sea route.

The earlier buyout of Sanghi Industries was similar. Housed in Gujarat’s Kutch region, it also has one bulk cement terminals in the state and one more in Maharashtra. That opens up not just the domestic market but also an opportunity in the neighbouring Middle East. Ajay Kapur, CEO and wholetime director, Ambuja Cement, in a statement after the Penna buyout, says the bulk cement terminals “will prove to be a gamechanger by giving access to the eastern and southern parts of peninsular India, apart from an entry into Sri Lanka, through the sea route.”

The objective is to make Penna Cement, which reported revenues of Rs 3,150 crore and a net loss of Rs 193 crore in FY23 (according to a Motilal Oswal report), "highly competitive in terms of cost and productivity, and enhance its operating performance."