Business & Economy

Ambuja Cements’ Stock Rises After Buying Penna; Jefferies and Morgan Stanley Positive on Growth

Ambuja Cements has caught the attention of major brokerage firms following its recent announcement of acquiring Penna Cement Industries for ₹10,442 crore. The acquisition, which aims to strengthen Ambuja’s market position, has led to a significant uptick in the company’s stock.

Jefferies has issued a ‘buy’ rating on Ambuja Cements, setting a target price of ₹735 per share. The brokerage firm emphasized that this acquisition will bolster Ambuja’s status as a pan-India leader in the cement industry, particularly enhancing its presence in the South. Jefferies’ positive outlook is based on the belief that this strategic move will help the Adani group cement company capture a larger market share and increase its operational efficiency.

Similarly, Morgan Stanley has acknowledged the acquisition as a positive development for the industry. The firm projects that Ambuja’s expanded footprint in the southern regions will drive volume growth in the medium term. Morgan Stanley has maintained an ‘equal-weight’ rating on the stock, with a target price of ₹665 per share.

The acquisition is fully funded through internal accruals and aligns with Adani’s ambitious goal of reaching a cement production capacity of 140 million tonnes per annum (MTPA) by 2028. This target is part of a broader strategy to secure a 20% market share in India’s booming construction sector. Macquarie, however, maintains a neutral stance on Ambuja Cements, citing a target price of ₹608. The brokerage notes that while the deal could increase Ambuja’s market share in the South to 10-11%, the acquisition costs are relatively high compared to organic expansion efforts.

Analysts at CLSA have also weighed in, calculating the deal’s valuation at $103 per tonne, which they view as comparable to recent sector acquisitions. They caution that while inorganic expansion can mitigate the demand-supply imbalance, the overall impact on the industry must be monitored. CLSA has issued a ‘sell’ call on Ambuja Cements, setting a target price of ₹575 per share.

Citi offers a neutral perspective with a target price of ₹675 per share. They highlight that Penna Cement’s substantial clinker reserves and the enterprise value per tonne close to greenfield replacement costs make the transaction beneficial. The potential for a turnaround, akin to Ambuja’s acquisition of Sanghi Industries, is seen as a value enhancer.

Nuvama Institutional Equities remains optimistic, citing Ambuja’s robust capital expenditure plans and cost-efficiency measures. They note that despite Penna Cement’s liquidity challenges, improved utilization rates could bring additional market volumes and intensify competition. Nuvama has retained a ‘buy’ rating with a target price of ₹767, based on FY26 estimates.

In summary, the acquisition of Penna Cement Industries is viewed positively by several leading brokerages, with expectations of increased market share and volume growth for Ambuja Cements. While some analysts urge caution due to the high acquisition cost, the general sentiment is that this strategic move will significantly benefit Ambuja in achieving its ambitious growth targets.

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