CK Birla in Talks with Gautam Adani for Orient Cement Stake Sale, Shares climb 8%

Orient Cement share price surged 14.5% during early trading on Wednesday, reaching a new 52-week high of ₹214.8 per share. This jump came after the media report, indicated that CK Birla approached Gautam Adani to sell his promoter stake in the company, after rejecting initial offers from other domestic players that did not meet valuation. In response to the news, Orient Cement's shares surged by nearly 14%, trading at ₹216 on the Bombay Stock Exchange (BSE). In contrast, the broader market saw a minor decline, reflecting the specific interest in Orient Cement.

CK Birla Group, is a well-established and diversified conglomerate in India, with a legacy spanning over a century, and is the promoter of Orient Cement. The group has interests in various industries, including manufacturing, automotive, healthcare, and technology. Orient Cement primarily serves major markets in Maharashtra, Karnataka, Telangana, and Madhya Pradesh. Additionally, the company maintains a modest footprint in Gujarat.

Recent Developments

The talks between CK Birla and Gautam Adani have been ongoing for the past few months. However, there is no assurance of a transaction taking place. CK Birla's valuation demand, double the current market price, could pose a challenge. As of the September 2023 quarter, the promoter holds a 37.9% stake in Orient Cement. If a transaction proceeds, it will trigger an open offer under takeover laws, requiring the incoming promoter or controlling entity to purchase an additional 26% stake from existing minority investors.

Adani Group has been actively expanding its presence in the cement industry. In the recent past, the group acquired Sanghi Industries, bringing its total cement capacity to 110 million metric tonnes per annum (MTPA). The acquisition of Holcim's stakes in Ambuja Cements and ACC Limited further strengthened Adani's foothold in the cement sector.

Valuation and Future Prospects

CK Birla's expectations for a valuation, of double the current market price, could be a challenge for any potential buyer. Orient Cement evaluating valuation benchmarks against the Ambuja-ACC sale to Adani Cement. There is speculation that JSW Cement may revisit the opportunity if these expectations are lowered. There is also the possibility that CK Birla may consider UltraTech, another prominent player in the cement industry, for a potential deal.

An acquisition of Orient Cement's assets could potentially benefit ACC's operations in South India. ACC has capacity constraints in the south, and acquiring Orient Cement's assets could help the company expand its market share in the region. Orient Cement has a cement capacity of 8.5 MTPA, spread across manufacturing plants in various states. The company has taken steps to reduce its debt, and its revenues increased by 8% in the fiscal year 2023. However, higher costs, especially in energy sources, impacted the operating profit (Ebitda).

Stock Performance

Over the past year, Orient Cement's share price has witnessed an increase of nearly 18%, and the stock has surged by an impressive 64% during this one-year period. If we extend our analysis to a five-year timeframe, investors in Orient Cement have enjoyed a remarkable return of 132% on their investment.

The potential sale of CK Birla's stake in Orient Cement to Gautam Adani's Adani Group has generated interest and speculation in the market. The outcome of these talks will be closely watched, given the implications for both companies and the broader cement industry in India. It remains to be seen whether a deal will materialize and under what terms.