Shares of Ambuja Cements rallied 10 per cent to hit a new high of Rs 568 on the BSE in Monday’s intra-day trade after Adani Group’s plans to infuse Rs 20,000 crore in the company. Additionally, after the Adani Group completed the acquisition of the two firms last week to become the country’s second-largest cement player, even ACC shares advanced more than 4 per cent intraday.
On September 15, 2022, Ambuja Cement’s new board approved an infusion of Rs 20,000 crore in the company by way of preferential allotment of 477.5 million convertible warrants at a price of Rs 419 to Harmonia Trade and Investment (promoter entity) on a preferential basis. The company said issuance of warrants can be exercised and converted into equity shares in one or more tranches within 18 months.
The new promoters have categorically stated that they want to double the group’s cement capacity in next five years and become largest and most efficient cement company by 2030. The management believes that the group’s exposure into energy and logistics will help them to improve cost dynamics and gain supply chain efficiencies.
What Should Investors Do Now?
Brokerages were divided, with some seeing up to 45 percent upside in the stock while others awaiting Ambuja Cements’ extraordinary general meeting (EGM) with its shareholders on October 8.
“This signals promoters’ intent for growth and commitment for further investments into the cement business. Upon conversion of these warrants, promoters’ shareholding will increase to 70.3 per cent v/s 63.2 per cent at present”, according to Motilal Oswal Financial Services.
The commitment of Promoters for growing cement business has strengthened after their announcement of fund infusion in this business. “We have assumed capacity of Ambuja Cements and ACC to be 88mtpa and 50mtpa, respectively in CY26E. The group has environmental clearance/plans for 25mtpa+ clinker capacities and the fundraising will help to pursue inorganic growth opportunities too,” the brokerage firm said in company update.
Jefferies believes it’s time to upgrade it to ‘buy’ as the cement maker is set to seek shareholders’ approval for the appointment of Gautam Adani and others on the board and a Rs 20,000 crore cash infusion in the company through preferential allotment of warrants.
As the Adani Group, following the acquisition, aims to become the largest and most efficient cement player by 2030, Jefferies believes group synergy benefits should start coming in from the October to December 2022 quarter and accelerate over the next 1-3 years.
The brokerage has upgraded its rating on Ambuja to buy and revised the target price to Rs 620, meaning it sees a further 20 percent upside in the stock. It has retained its ‘buy’ stance on ACC with a target price of Rs 3,030.
“Given the faster growth trajectory for Ambuja under new leadership, we now value Ambuja’s consolidated EBITDA at 16x EV/EBITDA, one notch higher than 15x target multiple for Ultratech. Further, fund infusion by promoters (which we have only partly factored in given lack of details on Cash deployment) leaves option-value for higher acquisition-related growth in profitability,” Jefferies added.
However, JPMorgan is of the view that there’s no clarity as yet on the Rs 20,000 crore fundraise. Post the warrant issuance, Ambuja Cements would become the most cash-rich company in the Indian cement sector, the brokerage said, adding that the aggressive new owners of the company are negative for its peers.
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