Adani’s cement giant in the making – who wins and who loses?

The Adani group’s cement vertical comprises Ambuja Cements, ACC Ltd, Orient Cement, Sanghi Industries, and Penna Cement Industries.

On 22 December, the board of Ambuja Cements approved the merger of ACC and Orient Cement into Ambuja. Sanghi and Penna consolidations had been announced in December 2024, and their official consummation into Ambuja is expected by the end of FY26.

Therefore, the ACC and Orient mergers will be the final step in creating a consolidated cement business under the Adani group.

The consolidation will unlock synergistic benefits for Ambuja Cements, while the fates of ACC and Orient hinge upon the valuations ascribed to them in the merger ratios. Existing shareholders of Adani’s cement businesses have already beaten the market.

Barring ACC, which has remained flat for reasons discussed subsequently, Ambuja and Orient have outperformed the broad market index, with 18% and 15% CAGR, respectively, over the last five years. The proposed simplification of organizational structure across Adani’s cement companies should unlock further value for shareholders.

Decoding the Street’s reaction

The merger ratios approved by the Ambuja board will accord 328 shares of Ambuja Cements for every 100 ACC shares. Against every 100 shares of Orient Cement, shareholders will receive 33 shares of Ambuja. The merger ratios reflect the relative ownership that ACC and Orient shareholders will receive in Ambuja after the consolidation.

On the day of the announcement, the stock of Orient Cement closed at ₹163.52, and that of Ambuja Cements at ₹539.95. If the approved merger ratios are applied to the stock prices prevailing on 22 December, it translates into Orient being valued at a 9% premium to its market price.

Against ₹16,352 worth of Orient shares, shareholders stand to get Ambuja shares amounting to ₹17,818. Even as ICICI Securities’ calculations show that this is a discount compared to where Orient was valued in 2024 when Adani had acquired it from the Birla group, Orient shareholders celebrated the development. Its stock has gained 5% since 22 December.

ACC shareholders have not been as fortunate. Weighed down by master-supply agreements (MSAs) with group companies, ACC’s profitability has been volatile. Despite remaining flat over the last five years, the share-swap ratios valued it a discount to its market-price on 22 December.

Based on ACC’s closing price of ₹1,782.5 apiece, ACC shareholders would receive ₹1,77,104 worth of Ambuja Cements for ACC shares amounting to ₹1,78,250. The valuation is also at a steep discount compared to how much Adani had paid to acquire it from Holcim in 2022. ACC stock has corrected 2.6% since the announcement.

That said, the record dates are yet to be announced. Until then, potential synergistic benefits from the consolidation will drive the stock price of Ambuja Cements. And those of ACC and Orient Cement will adjust accordingly. However, with expectations of potential synergies varying widely between overly optimistic and excessively cautious, brokers’ target prices for Ambuja Cements sit in a wide range, between ₹630 and ₹740.

Pan India powerhouse

ACC, which was acquired by Adani from Holcim in 2022, has forged itself a reputation for quality in the north. Orient Cement was acquired from Birla group in 2024, and has carved a niche in the south. Ambuja Cement, the parent entity that is absorbing ACC and Orient, boasts of a nation-wide presence. In all, a pan-India cement “powerhouse" is expected to emerge, Ambuja’s management said.

After the consolidation, the individual brands will continue as usual, in order to capitalize on their established client-connections and brand visibility. Supply chains, procurement, and logistics are expected to turn more streamlined under the centralized management of Ambuja, instead of the siloed managements typical in parent-subsidiary relationships.

Structural synergies

While the issuance of new shares for the merger will lead to a decline in promoter shareholding in Ambuja from 67.7% to 60.9%, analysts still expect incremental value to accrue to Ambuja shareholders based on the approved merger ratios.

Synergistic benefits are also expected to emerge. Sure, Ambuja, ACC, and Orient have already benefited from the group’s integrated ecosystem across logistics, renewable energy, and innovation. But with rigid arrangements like the MSAs no longer needed after the merger, incremental synergies and efficiencies can be expected.

Pooled manufacturing, as well as optimization of manufacturing sites, distribution networks, and sales and marketing expenses between the entities after the consolidation should aid operational efficiencies.

Under a single entity, the duplication of logistics, procurement, and branding efforts should be removed, reducing corporate overhead.

Analysts also expect improved capacity utilization. The company estimates cost savings at ₹100 per tonne. This is significant in comparison to Ambuja’s Ebitda per tonne of ₹1,043 in H1FY26.

That said, the Ebitda expansion from the consolidation is only one of the factors at play. Long-term industry-wide drivers of profitability include raw-material prices, intensity of competition, and resilience of demand.

Closing the gap

Compared to a parent-subsidiary relationship, a consolidated entity should see enhanced transparency, governance, and flexibility in capital deployment across companies. Capacity expansion should also be supported by a strengthened balance sheet of the consolidated entity.

This should help set the foundation to support expansion from 107 to 155 million tonnes per annum (MMTPA) by FY28. Ambuja currently claims 16.6% share of India’s cement market, with UltraTech Cement leading the industry with a capacity of 183 mmtpa. The gap with UltraTech can be expected to narrow down following the consolidation.

Risks remain

The consolidation is expected to be completed within 12 months, subject to regulatory and shareholder approvals. Until then, it will have to be seen whether business-as-usual is hindered by the organisational changes, and if any risks to business momentum and strategy continuity emerge. The company’s estimated benefit of ₹100 per tonne will depend on the successful execution of its plans.

At the same time, reports suggest that Ambuja has already consolidated a significant portion of its manufacturing, operations, and marketing verticals. The appointed date for the merger of Orient Cement is 1 May 2025 – this is the date from which the assets, liabilities, and operations of Orient are deemed to have been transferred to Ambuja. This limits the potential incremental benefits which could accrue.

Finally, regular business risks persist. Despite GST rate cuts, the demand for cement has been sluggish, and cement prices have been soft in an intensely competitive environment.

So, while Ebitda per tonne has expanded 31% year-on-year in H1FY26, even by the management’s own estimates and including the synergistic benefits from the consolidation, Ebitda per tonne is expected to grow at less than 20% (annualized) until FY28. According to ICICI Securities’ projections, the margin expansion is projected at approximately 12% CAGR until FY28.

This is to say that while the consolidation is a step in the right direction and will improve long-term efficiencies, execution will be critical and general industry-wide factors will play a significant role in driving the stock price.

Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa

Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.