Adani Group-owned Ambuja Cements plans to repay Penna Cement’s debt of ₹3,000 crore and enhance its capacity by another 3 million tonnes per annum, over and above the acquired 14 MTPA.

Ambuja will repay Penna’s debt once the deal is closed in 3-4 months to save on interest costs, and targets a credit rating of BBB– to AAA. Ambuja has surplus cash reserves of ₹15,676 crore as of March-end.

The surplus clinker at the Jodhpur plant in Rajasthan provides an opportunity to increase cement grinding capacity by 3 MTPA in the northern market, over and above the acquired capacity of 14 MTPA, said Ambuja Cements.

The company expects the South India market share to improve by 8-15 per cent, and the pan-India market share to go up by 2 per cent.

Penna has surplus land and limestone reserves to set up additional clinker lines and offers the scope for improving capacity by de-bottlenecking with marginal cost. The limestone mines were allotted during the pre-auction era and do not attract any royalty.

Ambuja’s consolidated capacity will reach 93 MTPA once the 4 MTPA of Penna Cement expansion project is completed in one year, and along with the blueprint for future expansion, the company aims to achieve 140 MTPA by March 2028.

Systematix Institutional Equities believes the Penna deal at $89 per tonne (assuming enterprise value includes the completion of 4 mtpa) is value-accretive and cheaper than Sanghi’s recent acquisition.

Further, surplus clinker can support an additional 3 mtpa of grinding capacity, which may be set up at $30-35 million tonnes, making it more attractive, it said.

While Penna has been facing liquidity issues, a potential turnaround (similar to Sanghi acquisition) can enhance the value for Ambuja Cements. At the same time, utilisation ramp-up at Penna will bring in additional volumes to the market and intensify competition, said Nuvama Institutional Equities.

Penna has 60 per cent of its current capacity in Andhra Pradesh, 30 per cent in Telangana, and remaining 10 per cent in Maharashtra.

The acquisition will strengthen Adani Cement’s sea transportation logistics, with five bulk cement terminals at Kolkata, Gopalpur, Karaikal, Kochi, and Colombo to serve peninsular India.

The successful execution of plans to reduce costs by increasing the share of green power and AFR (alternative fuel and raw material), entering into long-term procurement strategies for critical raw materials, and optimising logistics would be a positive surprise, said Motilal Oswal Financial Services.

Ambuja Cement shares were up two per cent at ₹677 on Friday.