Ahmedabad: A master of mergers and acquisitions, billionaire, Gautam Adani, has, over the years, built his empires — be it thermal power generation, power transmission and distribution, renewable energy, ports, edible oil or airports — to attain leadership in each of the sectors. To do so, he has relied, often, on a non-linear inorganic acquisition-based model.
Cement is highly energy intensive and Adani is already the country’s largest private producer of both thermal and solar power. (Reuters)
Given the operating model of the group, the Adani Group’s recent foray into the cement sector by the acquisition of Holcim's stake in Ambuja Cement and its subsidiary ACC for $10.5 billion would lead to about half a dozen more acquisitions in the next five to seven years, as the group has chalked out plans to double the cement production capacity in next five to seven years. This means the other large cement companies will also start acquiring, pumping up the valuations of the smaller cement companies.
Post-acquisition, Adani is India's second-largest cement manufacturer, with a capacity of 70 metric tonnes per annum. The Aditya Birla group's capacity is 117 metric tonnes per annum.
“In the next five to seven years, Adani has set a target to double the cement capacity to 140 million tonnes,” said an official close to the company.
A large part of the group’s expansion in the last five years has come through acquisitions and this is expected to continue, given the strong balance sheet that each of the listed entities has today. “Adding 70 million tonnes capacity in such a short time is not possible in the organic way. You can expect about five to seven smaller cement companies to fall into Adani’s fold over the next few years,” he said.
The rationale
The Adani Family, through an offshore special purpose vehicle, announced that it had entered into definitive agreements for the acquisition of Switzerland-based Holcim Ltd’s entire stake in two of India’s leading cement companies – Ambuja Cements Ltd and ACC Ltd. Holcim, through its subsidiaries, holds 63.19% in Ambuja Cements and 54.53% in ACC (of which 50.05% is held through Ambuja Cements).
The deal is likely to close in the second half of CY22.
Calling Adani’s acquisition of Holcim’s India businesses a masterstroke, analysts said the deal will potentially change the fortune of the sector.
Adani Ports and Special Economic Zone (APSEZ) is the largest port developer and operator in India representing 24% of the country's total port capacity. The company has, over the years, acquired port terminals including Dhamra in Odisha, Gangavaram, Krishnapatnam in Andhra Pradesh, and Kattupalli in Chennai.
In the airports business, the Group recently acquired a majority stake in Mumbai Airports.
Logistics is a key element for success in the cement business. At a time when other cement companies are strengthening their position in logistics, Adani group has one of its core businesses in logistics – it runs the country’s largest commercial port at Mundra – has forayed into cement. In a commodity-driven industry, an existing business that gives you some competitive edge. Adani’s presence in power generation, logistics to real estate development will help.
Cement is highly energy-intensive and Adani is already the country’s largest private producer of both thermal and solar power. Also, the large amount of fly ash produced from the coal-fired power plants can be used for making Portland Pozzolana Cement.
One of the reasons cited for Holcim’s plans to exit India has been its decision to focus on the group's “strategy 2025” which aims for sustainable solutions for the building materials sector. About 8% of the world’s CO2 emissions are from cement.
Adani Power is building a renewable portfolio of 25 GW by 2025 that includes solar, wind and hybrid power. The group has already drawn-out plans to invest over 70% of the planned Capex in green technologies until 2030 and Adani is expected to power its cement factories using renewable energy sources.
"Our move into the cement business is yet another validation of our belief in our nation's growth story," said Gautam Adani, Chairman of the Adani Group in a media statement last Sunday.
"Not only is India expected to remain one of the world's largest demand-driven economies for several decades, but India also continues to be the world's second-largest cement market and yet has less than half of the global average per capita cement consumption. In statistical comparison, China’s cement consumption is over 7x that of India’s. When these factors are combined with the several adjacencies of our existing businesses that include the Adani Group's ports and logistics business, energy business, and real estate business, we believe that we will be able to build a uniquely integrated and differentiated business model and set ourselves up for significant capacity expansion.”
The group's real estate arm Adani Realty has so far developed close to 13.94 Lac sq. mtrs. and has close to 12.26 Lac sq. mtrs. of real estate space under development, including residential, commercial, and social club projects across Ahmedabad, Mumbai, Pune & Gurugram, according to the official website.
“Adani group's entry to cement business reflects its belief in India's growth story and cement industry's growth potential. The group believes that it will be able to build a uniquely integrated and differentiated business model with several adjacencies of existing businesses (port/Logistics, renewable & real estate) and expects significant capacity expansion. ACC- Ambuja merger would likely be explored as well, we believe," said brokerage firm Jefferies India in a note.
“We expect the biggies like UltraTech Cement to probably fast-track their future expansion plans, as they may fear losing their industry positioning or it to be at a risk in the long-term, if Adani acquires some more sizeable capacities," said analysts at PhillipCapital.
He is an Ahmedabad-based journalist with more than two decades of experience. His career spans business journalism and general news, with reporting across politics, crime, governance, public policy, business, industry, infrastructure, energy, ports, aviation, the environment, wildlife and social issues. He began his career in feature writing before moving into business journalism, reporting on companies and sectors including energy, infrastructure, pharmaceuticals, automobiles and real estate. Over the years, his work expanded to politics, courts, crime, public policy, civic affairs, the environment and wildlife. His reporting has taken him from government offices and courtrooms to factory floors, ports, forests and remote villages, covering stories that range from industrial investments and financial markets to elections, conservation and issues affecting everyday life. While many assignments demand the pace of the daily news cycle, others require sustained reporting over months and years to follow developments beyond the headlines. He started his journalism career with the Asian Age in Ahmedabad in 2002 as a feature writer and sub-editor. Since 2022, he has been working with Hindustan Times. Earlier, he worked with Business Standard, DNA, The Economic Times, Mint and The Times of India. His longest stint was with Mint, where he spent more than eight years reporting across multiple beats. During his career, he has worked in both reporting and editing roles, contributing to page planning, local editions and special editorial projects as newsrooms evolved from print-first operations to digital publishing. Early in his career, he also worked on media and documentary projects with an NGO and as a copywriter at a communications agency before returning to journalism. Away from work, he sometimes makes time for a pair of binoculars, table tennis, cinema and the occasional poem.Read More
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