Ambuja Cements to acquire Sanghi Industries in Rs 5,000 crore deal

Gautam Adani-owned Ambuja Cements on Thursday announced its acquisition of smaller rival Sanghi Industries at an enterprise value of Rs 5,000 crore.

This is the Adani Group's first major deal since the damning Hindenburg Research report in January.

Analysts term it a bet on sea-logistics.

The acquisition, expected to close in the next three to four months, will entail purchase of 56.74 per cent shares from Sanghi Industries' promoter group comprising Ravi Sanghi and family and another 26 per cent of the voting share capital pursuant to the open offer.

With multiple other suitors for the cement asset, what could have worked in Adani’s favour, according to analysts, is the port-related synergies at the group level.  

“Our channel checks suggest some other bidders balked at the asking price for assets, especially considering the shallow depth (of the captive port) (draft of 4.5 metres), which allows only relatively smaller vessels,” analysts with Ambit Capital noted in a report on Thursday, prepared prior to the deal announcement.

Aware of the limitations, part of the announcement, Ambuja Cements said it will invest to increase Sanghi’s cement capacity to 15 MTPA in the next two years and invest in expanding Sanghi’s captive port capacity to handle larger vessels of 8,000 DWT (deadweight tonnage).

"It is a good deal for Ambuja given the group synergies. No other cement company (with no port experience) would have been able to address the draft related logistics issue," said a cement analyst, who did not wish to be identified.

Not everyone is convinced.

"Adani Ports had already done some dredging historically for Sanghi Cement on a commercial basis, but if that’s the case, why couldn’t Sanghi Cement do it, or why didn't other bidders such as JSW consider that possibility," analysts with Ambit noted in the report, pointing Sanghi's historically low utilisation levels. 

Expanding along the west coast

The captive port infrastructure is crucial from the access to Mumbai and other markets perspective.

“Surat and Mumbai, are currently the two best markets for cement in India,” said the cement analyst quoted earlier in the story. 

Karan Adani, non-executive and non-independent director of Ambuja Cements is aware of the potential.

He said, the vision is to produce lowest-cost clinker in the country at Sanghipuram (Sanghi’s location) and then transport clinker as well as bulk cement through coastal route to the market of Saurashtra, South Gujarat, Mumbai and Mumbai Metropolitan region, Karnataka and Kerala.

“Synergy with the assets of Adani ports will help us accelerate the implementation of this strategy,” Adani said.

Sanghi Industries also has a bulk cement terminal each at Navlakhi Port in Gujarat and Dharamtar Port in Maharashtra. 

Ambuja Cements said it plans to create bulk terminals and grinding units along the western coast to enable movement of clinker and cement through the sea route at the lowest possible cost.

Before the deal, Ambuja Cements was estimated to operate 15 per cent of the cement capacities in Gujarat.

Post the Sanghi takeover, the share is estimated to rise to 29 per cent, closing in on the current volume leader -- UltraTech.

Sanghi Industries has a clinker capacity of 6.6 MTPA and a cement capacity of 6.1 MTPA, including limestone reserves of 1 billion tonnes, a captive jetty and power plant.

Clinker is mixed and ground with gypsum and other materials to make cement.

100+ MTPA mark

The acquisition will take Adani Group’s cement capacity — ACC Ltd included — to 73.6 million tonnes per annum (MTPA).

The group plans to hit the mark of more than 100 MTPA by 2025, aided by the Sanghi acquisition, another 5.5 MTPA going on-stream in the second quarter of financial year 2022-23, and a capital expenditure of 14 MTPA.

UltraTech Cement is now the only company in India with more than 100 MTPA capacity.

Ambuja Cement said with this acquisition, the company’s goal to reach 140 MTPA capacity (including ACC) by 2028, will be achieved ahead of time.

To put that number in perspective, India’s largest cement manufacturer UltraTech operates 131.25 MTPA capacity and intends to take it to 200 MTPA by 2028-2030.