On October 22, 2024, Ambuja Cements Ltd (Ambuja) announced that it has entered into binding agreement to acquire 46.8% equity share of Orient Cement Ltd (OCL) from the existing promoter group and public shareholders for a cash consideration of Rs 3,791 crore. Subject to regulatory approvals, a mandatory open offer for acquisition of an additional 26% equity stake in OCL from the public shareholders will also be triggered, which could lead to an additional cash outflow of up to Rs 2,112 crore. The transaction is expected to get consummated by the last quarter of fiscal 2025.

Despite such a sizeable payout, the financial risk profile of Ambuja will continue to remain strong owing to its large networth, healthy liquidity and strong cash accrual. The company is expected to fund the transaction through its cash accrual and liquidity. Even with large capex to the tune of Rs 50,000-55,000 crore (including inorganic acquisitions) over fiscals 2025 to 2028, the company is expected to remain cash positive owing to large cash balance and higher cash accrual from expected improvement in profitability and incremental sales from the new capacity.

OCL has an installed cement capacity of 8.5 MTPA) across Maharashtra, Karnataka and Telangana. The plants are equipped with railway sidings and have a total of 95 MW captive power plant, with 10 MW WHRS and 33 MW of renewable power. CRISIL Ratings believes that the acquisition of OCL will further strengthen Ambuja’s already strong business risk profile and will increase its regional share in the western and southern markets. It will also support the company’s plan to increase its consolidated cement capacity to 140 MTPA by fiscal 2028. Ability to successfully ramp up OCL’s plants to desired utilisation levels and achieve cost optimisation on a consolidated level will remain a monitorable.

CRISIL Ratings’ 'CRISIL AAA/Stable/CRISIL A1+' ratings on the debt instruments and bank facilities of Ambuja remain unaffected by this transaction. The ratings continue to reflect the strong business risk profile by virtue of Ambuja and ACC Ltd (‘CRISIL AAA/Stable/CRISIL A1+’) being the second-largest cement group in India, its robust operating efficiency and strong financial risk profile. These strengths are partially offset by susceptibility to the commoditised and cyclical nature of the cement industry. Substantial leveraging of the balance sheet or change in financial policies, which could weaken the financial risk profile, will be a key rating sensitivity factor.

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