Ambuja Cements Ltd., a subsidiary of the Adani Group, has announced the acquisition of a 56.74% stake in Sanghi Industries Ltd., one of the leading cement manufacturers in western India. The deal values Sanghi Industries at an enterprise value of Rs 5,000 crore and is expected to boost Ambuja Cements’ capacity and presence in the lucrative Gujarat market.
A Strategic Move for Adani Group
The acquisition of Sanghi Industries is the first major deal for the Adani Group this year, after months of damage control following US short seller Hindenburg Research’s allegations of corporate malfeasance in January. The Adani Group has denied any wrongdoing and has continued to pursue its ambitious expansion plans across various sectors.
The deal is also in line with the Adani Group’s vision to double its cement capacity by 2028, ahead of time. The group had acquired Holcim Ltd.‘s Indian assets last year, making it the second-largest cement producer in the country. With the addition of Sanghi Industries, Ambuja Cements’ capacity will increase by 9% to 73.6 million metric tons per year.
Gautam Adani, the chairman of the Adani Group, expressed his delight over the deal on Twitter. He said that Sanghi Industries, which is based in his karmabhoomi Kutch, will significantly leverage his group’s integrated logistics and distribution network.
A Win-Win Situation for Sanghi Industries
Sanghi Industries, which was founded by Jayprakash Rangnath Sanghi in 1985, has a state-of-the-art cement plant with a capacity of 4.1 million metric tons per year in Sanghipuram, Gujarat. The company also has a captive power plant of 63 MW and a captive jetty for clinker and cement exports.
The company has been facing financial challenges due to high debt, low capacity utilization and intense competition in the Gujarat market. The deal with Ambuja Cements will provide Sanghi Industries with a much-needed liquidity infusion and access to a larger customer base.
The deal will also trigger an open offer for an additional 26% stake in Sanghi Industries at Rs 114.22 per share, representing a 13.8% premium to its closing price on August 2. The open offer will be fully funded by Ambuja Cements through internal accruals.
A Positive Outlook for the Cement Industry
The deal comes at a time when the cement industry is witnessing a recovery in demand and prices after being hit by the Covid-19 pandemic. The industry is expected to benefit from the government’s infrastructure push, rural housing schemes and low-interest rates.
According to a report by ICRA Ratings, the cement demand is expected to grow by 18-20% in FY2023, supported by a low base effect and a revival in economic activity. The report also expects the cement prices to remain stable or increase marginally in FY2023, aided by a favorable demand-supply scenario.
The deal between Ambuja Cements and Sanghi Industries is likely to create synergies and economies of scale for both the companies and enhance their competitive edge in the cement industry.