The Adani Group, which announced the acquisition of Gujarat-based cement maker Sanghi Industries on Thursday, plans to increase its overall cement manufacturing capacity to 140 million tonnes in the next five years. Karan Adani, director, Ambuja Cement, told ET’s Deborshi Chaki and Nehal Chaliawala in an interview that the group is open to more acquisition opportunities. Edited excerpts:
How did this deal come about?
There are three unique things about this company. Firstly, they have 1 billion tonnes of limestone reserves. So, the ability to add more cement capacity becomes viable. Secondly, lignite deposits are very close by, so the cost of production of clinker can be one of the lowest in the country. Thirdly, the integrated cement unit in Sanghipuram in Kutch is just 150 km from Mundra port. Movement of clinker as well as bulk cement through seaways will allow us to serve Saurashtra, south Gujarat, Maharashtra, Karnataka and even Kerala at a low cost. What kind of ebitda accretion do you expect from this acquisition?
Once we are able to produce clinker at one of the lowest costs, we believe that this plant is capable of achieving ebitda margins on a per-tonne basis similar to Ambuja and ACC. And if you see, post the acquisition of Ambuja and ACC, every quarter, ebitda per tonne has been on an upward trajectory. So, we would be looking to run this plant at the same efficiency.
This acquisition is to be funded through internal accruals. What will your liquidity position be after this?
Sanghi Industries will be a debt-free company after the takeover. Ambuja and ACC combined had a cash balance of roughly Rs 11,800 crore as of Q1. This year, we would be adding another Rs 3,000 crore of free cash after capex, tax and dividends. With the Sanghi Industries acquisition, we would be looking to end this financial year with close to Rs 11,000 crore of cash. We would be paying down the full debt of Sanghi Cement after acquisition.
Will you also repay the outstanding debt of current promoters? Also do you plan to keep Sanghi Industries separately listed?
Yes, we will repay all existing debt, including any outstanding loans against pledged promoter shares. As of now, we don’t have any plans of merging this entity. We will take a call in maybe six to 12 months. We would like to keep our options open.
With this acquisition, how far along are you on your target to achieve 140 million tonnes per annum (MTPA) capacity by 2028?
We will be commissioning 5.5 million tonnes of new cement capacity in Q2 of this year. On top of that, we will be expanding Sanghi Industries’ capacity from 6.1 million tonnes to 10 million tonnes in the next six months. Those are basically just debottlenecking projects and won’t entail a large capex. In all, we are implementing expansion plans that will take us to 101 million tonnes by 2025. The balance 40 million tonnes will be achieved through brownfield expansions of Ambuja and ACC. For most of these sites, we are already under the process of getting environment clearance. Once we get the clearance, we will be announcing that capex as well. Today we are at 67.5 MPTA.
More acquisition opportunities are likely on the horizon in the cement sector. Do you plan to bid for them as well?
We will be on the lookout for opportunities where we can acquire an asset at a relatively cheaper price than what it would cost us for our brownfield expansion. So, if it is value-accretive from that point of view, we would look at it.
Your capacity expansion plans are much faster than even the most optimistic demand growth projections. How will you ensure sufficient capacity utilisation in the coming years?
From our point of view, the strategy is pretty clear that we will be optimising the cost even more. Since the acquisition of Ambuja and ACC, we have improved the cost structures on the operations side each quarter. And this is just the beginning. We still have a long way to go in terms of further improvement in our cost structures. Energy, logistics and raw materials are 70% of the cost of producing cement and if you see from a group perspective, that is where our strength is. We will be tapping into the synergies of the Adani Group towards reducing those costs. We will be the lowest cost producers of cement in the country.