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Fund raising signals the intent of capacity additions

Issues warrants to promoters aggregating INR200b

* ACEM has announced the issuance of warrants to Harmonia Trade and Investment (promoter entity) on a preferential basis, at INR418.87/warrant, aggregating to INR200b.

* These warrants can be exercised and converted into equity shares in one or more tranches within 18 months. This signals the promoters’ intent towards growth and commitment for further investments in the Cement business. Upon conversion of these warrants, the promoters’ shareholding will increase to 70.3% v/s 63.2% at present.

and announces changes to its Board structure and KMPs

? The Board has been reconstituted for both companies. Mr. Gautam Adani has been appointed as Chairman and Non-Executive, Non-Independent Director of ACEM. Mr. Karan Adani has been appointed as Chairman and Non-Executive, Non-Independent Director of ACC.

? Mr. Ajay Kapur has been appointed as CEO and KMP of ACEM. Mr. Sridhar Balakrishnan has been re-designated asthe CEO and Whole-Time Director of ACC.

? Mr. Vinod Bahety has been appointed as the CFO of both ACC and ACEM. He has over 19 years of experience. Prior to this, he served as Group Head – M&A and Corporate Finance for the Adani group.

? ACEM also changed in its accounting year to April-March from January-December.

Promoters aim to become the largest Cement player by CY30

? Holcim has exited its India Cement business after selling its stake to the Adani group. The new promoters want to double the group’s Cement capacity over the next five years, and become the largest and most efficient company by CY30. The management said the group’s exposure in the energy and logistics sector will help improve the cost dynamics and aid supply-chain efficiencies.

? Historically, ACC and ACEM have been a laggard in capacity additions and their installed capacities grew at a CAGR of a mere 2% each over FY11-22, while other peers had a capacity CAGR of 6-13%.

Fundraising will help to grow without stressing the Balance Sheet

? ACC and ACEM are both net cash positive with a cumulative cash balance of INR84b (as at the end of Jun’22). Fundraising of INR200b can help the group increase its Cement capacities by 70mtpa (25mtpa/45mtpa inorganic/organic expansion) by CY26E without leveraging its Balance Sheet.

? We have assumed a cost of USD100/USD130 per tonne for organic/inorganic expansions. We expect a combined net debt of INR7b for ACC and ACEM in CY26 (we have not assumed an improvement in profitability after CY24 or synergy benefits in our base case assumption). Assuming synergy benefits of INR200/INR300 per tonne for ACC/ACEM, net cash at the end of CY26 will be INR45b.

Remain Neutral on ACC and ACEM as clarity required on cost synergies

? The promoters’ commitment towards growing the Cement business has strengthened after the announcement of fund infusion in this business. We have assumed a capacity of 88mtpa/50mtpa for ACEM/ACC in CY26. The group has environmental clearance for over 25mtpa Clinker capacities, and the fundraising will help it pursue inorganic growth opportunities.

? We have discounted our CY26-based assumptions at a WACC of 12% to arrive our CY24-based TP. Our TP for ACC/ACEM has increased to INR2,515/INR530 from INR2,260/INR350. Assuming a cost benefit/t of INR200/INR300 for ACC/ ACEM, our TP will increase to INR3,185/INR680.

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