Internal accruals to fund Adani cement expansion – The Financial Express

The Financial Express
By Rajesh Kurup and Kishor Kadam
Adani Group is not looking to raise any external funding to double manufacturing capacity of its cement firms, Ambuja Cements and ACC, to 140 million tonne by FY28 as the group has “sufficient” internal accruals. Further, the group has outlined a road map for cost reductions to reach its goal of becoming the country’s most profitable cement manufacturer.
“The group is not putting the expansion of the cement companies on hold, nor [does it have] any plans to raise external debt or equity, and its vision for FY28 is on track. The expansion plans for the cement companies are on track and the group would fund these through internal accruals; the first phase is slated to commence anytime now,” a source close to the development said.
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During the past six years, Ambuja Cements and ACC together had an average cash and cash equivalent of ₹8,394 crore and ₹3,194 crore of net cash flow from operations. For the year ended December 2022, the companies’ cash and cash equivalent stood at ₹9,454 crore, an increase from ₹5,874 crore recorded in calendar year 2017, but a dip from ₹11,358 crore posted in 2021.
The companies had posted a negative net cash flow from operating activities of ₹836 crore in 2022, down from ₹5,309 crore posted in 2021 and ₹3,416 crore recorded in 2017.
Following its acquisition of the cement firms in September last year, Adani Group had announced plans to double cement production capacity to 140 million tonne in the next five years and become the most profitable manufacturer in the country. While the group did not provide investment figures, analysts had estimated an investment of ₹46,000 crore for the expansion plans.
Adani Group, which has been holding road shows in Singapore, Hong Kong and the United Kingdom, has also informed investors of commencing the first phase of expansion plans for the cement firms. The company has earmarked ₹7,000 crore as capex under phase-I in FY24, which includes expanding cement grinding capacity by 11 MT and that of clinker integrated unit by 12.75 MT.
The cement firms’ cost reduction initiatives include optimisation of manufacturing, logistics and other overhead costs, which would help in reducing cost by up to ₹400 per tonne.
It also informed investors that Adani Group’s Ebitda for FY23 will be about ₹61,200 crore, of which 7% will come in from Adani Cement (Ambuja Cements and ACC). Adani Cement’s Ebitda per tonne had increased to ₹829 per tonne in the December quarter from ₹340 per tonne recorded in September quarter.
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In its largest-ever acquisition and India’s largest-ever M&A transaction in the infrastructure and materials space, Adani Group acquired Switzerland-based Holcim Group’s stake in Ambuja Cements and ACC in September last year for $6.5 billion in cash. Holcim, through its subsidiaries, held 63.19% stake in Ambuja Cements and 54.53% in ACC (of which 50.05% is held through Ambuja Cements).
Adani Group chairman Gautam Adani had said there would be a multi-fold rise in cement demand in the country on the back of record-breaking economic growth and the government’s infrastructure creation push.
“While India is the second-largest producer of cement in the world, our per capita consumption is just 250 kg compared with 1,600 kg of China. This is almost a 7x headroom for growth. Furthermore, as several of the government’s programmes gather momentum, the long-term average growth in cement demand is expected to be 1.2-1.5 times the GDP. We anticipate growing at twice this number,” Adani had said.
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