Gautam Adani’s Ambuja Cements draws up $9-billion war plan for Ultratech battle

The ₹75,000-crore capital expenditure plan includes augmenting the capacity of Ambuja Cements to at least 180 million tonnes per annum over the next three years, from about 80 mtpa now, according to two persons aware of the group’s plans.

For Ambuja Cements, the country’s second-largest cement-maker, that’s a considerable ascent, given that Ultratech Cement’s current capacity is at about 151.6 mtpa.

The Adani group is looking to leverage on Ambuja’s available cash of ₹25,000 crore in the balance sheet for an additional capital of ₹50,000 crore, including debt, to augment its production capacity, the people familiar with the plans said, speaking on condition of anonymity.

The Adani group is relying on an additional capital of ₹50,000 crore, or about $6 billion, including debt, based on its freshly injected promoter cash and the cash reserves in Ambuja Cements’ books to augment capacity, said the people mentioned above, speaking on condition of anonymity.

Spokespersons for Adani group and Ambuja Cements didn’t immediately reply to queries.

The Adani family currently owns about 70.3% of Ambuja Cements following its  ₹8,339-crore capital infusion into the company on 17 April. Overall, promoter capital infusion into Ambuja Cements stands at about ₹20,000 crore, or about $2.4 billion.

Additionally, Ambuja’s management is counting on cash flows of at least ₹5,000 crore annually over the next three years from its existing assets, said one of the persons mentioned earlier. 

“With cash worth ₹25,000 crore, a production cost at ₹750 crore per mtpa and a leverage ratio of 2:1 (net debt to operating income) on the existing cash position, Ambuja Cements can incur a capex of ₹75,000 crore, allowing at least 100 mtpa of additional capex,” said this person.

The Adani group had acquired Ambuja Cement for $6.5 billion in September 2022 to support its construction-focused businesses. Since then, Ambuja Cement has boosted its capacity by about 18%, and also plans to ramp up production at the recently acquired Sanghi Industries from 6 mtpa to about 15 mtpa.

Overall, the company has 18 integrated manufacturing plants and cement grinding units. 

The Adani group believes it has an edge over industry peers with its low-cost utilities as well as its own transport and logistics platform, and mining services, which together account for over 70% of the cement-production cost, according to the two persons mentioned earlier.

Ambuja Cements’ operating income per tonne has increased nearly threefold—from ₹432 per tonne to ₹1,225 per tonne—from the time of its acquisition in 2022, they said.

Adani’s ambition for Ambuja Cements is unlikely to make for a straightforward climb, however.

While Ambuja Cements could potentially increase its overall capacity to about 120 mtpa over the next 2-3 years, Ultratech Cement too will be expanding, pointed out a cement sector analyst with a Mumbai-based brokerage.

“Ultratech has a more feasible plan to reach 180 mtpa in that timespan. For Ambuja, crossing 180 mtpa may take 6-7 years,” said the analyst, declining to be identified.

Also, while Ultratech Cement has achieved a compound annual growth rate of 10.4% in capacity over the previous 7 years, Ambuja Cements has grown at just 0.8%.

That said, the Aditya Birla group, the promoters of Ultratech Cement, are grappling with high debt in their telecom venture, Vodafone Idea Ltd, while the Adani group’s profits are growing in double digits. 

“Operationally, Ultratech has slightly better cost efficiency in production currently. But given Adani group’s strength in logistics and in terms of captive energy plants in both coal-based and the renewable energy space, Ambuja has an opportunity to leverage on,” said the analyst quoted above.

To improve Ambuja Cements’ operating income/tonne ratio, or ebitda/tonne ratio, the Adani group is establishing a 1,200 MW captive solar plant that could halve its electricity costs over the next 2-3 years, said the two people familiar with the Adani group’s plans.

“Once the plant is set up, the input power cost per unit for Ambuja’s production will reduce from ₹6-6.5 per unit to ₹3-3.5 per unit (Adani Green sells energy at this price),” said the first person quoted earlier.

Ambuja Cements, from the Sanghi Industries acquisition last year, has gained access to 1 billion tonnes of limestone reserves, a crucial raw material in making cement. Since the assets are by the coast, at Sanghipuram port, in Gujarat’s Kutch district, the company can save on logistics costs by using marine transportation, which is cheaper than transporting via road. 

Logistics costs, at about ₹5,881.6 crore, accounted for about 24% of Ambuja’s  revenue of ₹24,265.7 crore during the nine months ended December.

The analyst quoted earlier said Ambuja Cements would need additional clinker capacity to achieve its target production of 180 mtpa. Clinker is the basic cement-producing raw material made by sintering limestone.

“Ambuja has spoken about 20 mtpa of additional clinker capacity, which translates to 30-35 tonnes of additional production. So in total, the production capacity of Ambuja can be increased from around 80 mtpa to around 120 mtpa. If they want to go beyond 180 mtpa, they will need around 120 mtpa clinker capacity, which can be possible only inorganically,” said the analyst. 

The two people familiar with the Adani group’s goal for Ambuja Cements said the expansion plan does involve acquisitions. 

“Adani wants to be number one in (the cement sector),” said the first person quoted earlier. “All the group and company presentations explicitly make a mention of the leading positions of each of their businesses, be it ports or airports, renewable or conventional power, or transmission. Except this one,” he said.