Ambuja Cements-Sanghi Industries deal: How Adani Group's cement business will see its presence in newer markets

Billionaire industrialist Gautam Adani-owned Ambuja Cements announced a deal to buy Sanghi Industries for Rs 5,000 crore in early August. From a long-term strategic perspective, Ambuja Cements has a lot to gain from the acquisition of one of the top cement producers in western India. While expanding capacity or gaining a stronger foothold in a particular region (in this case, western and central India) is important for the power-to-ports conglomerate, what is even more critical is the capacity to serve coastal markets.   

Sanghi’s cement factory, located in Gujarat’s Kutch region, is India’s largest single-location cement and clinker unit by capacity, per a statement from Ambuja. The acquisition also includes a captive jetty and a power plant. This will help Ambuja smoothly transport the commodity to the coastal parts of Maharashtra, Karnataka and Kerala. Currently, Sanghi has a clinker (an essential component in producing cement) capacity of 6.6 million tonnes per annum (mtpa), a cement manufacturing capacity of 6.1 mtpa, and most importantly, reserves of 1 billion tonnes of limestone, a key raw material. It also has a bulk cement terminal each at Navlakhi Port in Gujarat and Dharamtar Port in Maharashtra, apart from a network of 850 dealers and a presence in Gujarat, Madhya Pradesh, Rajasthan, Maharashtra and Kerala, which will further strengthen Ambuja’s presence in these regions. The Adani Group’s large presence in ports will also prove to be a strategic advantage.  

Following the deal, the group’s cement production capacity will increase to 73.6 mtpa from 67.5 mtpa currently, taking it closer to the 140 mtpa capacity of the country’s largest cement manufacturer, UltraTech Cement. The Adani Group bought Ambuja and ACC for $10.5 billion last June while the deal to acquire Sanghi is its first significant action in the space since then. Analysts say that back-of-the-envelope calculations reveal that the reserves of 1 billion tonnes of limestone translate into 600 million tonnes of clinker. And assuming that the life of a plant is 40 years, it can produce 15 mtpa of cement each year. Clearly, the acquisition has been prompted by the large limestone reserves, they say. 

The complementary nature of the deal speaks of the group’s long-term view in cements. Deven Choksey, Promoter and MD of wealth management firm KRChoksey Group, cites the Adani Group’s presence in segments such as logistics, energy and limestone reserves as competitive advantages. Since acquiring Ambuja and ACC, the group has an established customer base, he says. “Now, there is an opportunity for a more value-added play.” Besides, the group has a play in infrastructure, more specifically in road and ports. “Getting it right in commodities calls for a large footprint and the ability to sell. Adani’s cement business is well-placed in both.”    

And the group intends to press on. Sanghi’s capacity would be increased to 15 mtpa in two years, said Karan Adani, Director of Ambuja Cements, after the deal was announced. “We will also be investing in expanding the captive port capacity to accommodate vessel sizes of 8,000 DWT (deadweight tonnage of a ship). Our vision is to produce the lowest-cost clinker at Sanghipuram (in Gujarat) and then transport clinker as well as bulk cement through the coastal route to the markets of Saurashtra, south Gujarat, Mumbai and Mumbai Metropolitan Region, Karnataka and Kerala,” he said, adding that synergy with its ports would help speed up implementation of this strategy.    

According to a cement industry executive, the deal could also see Sanghi exporting its cement to locations such as Dubai, Bahrain and Muscat. “With the sea route option at their disposal, the ability to disrupt markets is quite high,” he says. Further, Karan Adani said that the ongoing capex for Sanghi will boost the group’s cement production to 101 mtpa by 2025. “Ambuja’s goal of 140 mtpa capacity by 2028 is well on track, and with this acquisition, it will be achieved ahead of time,” he said.   

Choksey says the group can reap another benefit from its involvement in the infra space. “Be it roads, water or railways, they are strongly placed and can control transport costs,” he argues. With the group’s coal business in Australia, for instance, it can easily export it to India for its power business, which in turn throws up fly ash, a raw material for cement manufacturing. “Ambuja uses rice husk as an alternative power already, and it can easily be moved across the overall cement business. With scale, it is possible to cut back on costs and increase efficiency levels.”  
The Sanghi buyout, it is expected, will further cement the Adani Group’s position in the sector.  
     
@krishnagopalan