Is Ambuja overpaying for Orient Cement?

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Subscribe to enjoy similar stories. Ambuja Cements' acquisition of a 46.8% stake in Orient Cement for ₹395.4 per share has sparked debate about whether the company is paying a premium in a competitive market. As consolidation gains pace across the cement sector, Ambuja is expanding capacity despite lofty valuations and soft earnings weighing on the industry’s short-term outlook.

This acquisition will add 8.5 million tonnes of operational capacity across Telangana, Karnataka, and Maharashtra to Ambuja’s portfolio. Additionally, Orient’s limestone mining lease in Chittorgarh, Rajasthan, offers potential for an additional 6 million tonnes of capacity in northern India. Ambuja’s move is part of a broader trend where cement companies are positioning themselves to benefit from infrastructure-led demand growth in southern India.

UltraTech Cement and Ambuja have been particularly active, with the latter acquiring Penna Cement in June for $125 per tonne. Penna’s 10 million tonnes of operational capacity and ₹10,422 crore enterprise value reflect the strategic importance of southern-focused assets, where Andhra Pradesh's capital Amravati is expected to spur cement consumption. The Union Budget 2024 further boosts this narrative with an allocation of ₹15,000 crore for Amravati’s development and investments in backward districts across Andhra Pradesh.

This wave of regional development has cement companies scrambling to secure capacity to meet the expected demand boom. At $114 per tonne, Ambuja’s Orient acquisition aligns with market trends. In July, UltraTech acquired 32.7% of India Cements for ₹390 per share, valuing it at $111 per tonne.