Adani Cements will not require external loans for capex expansion

Adani Cements is looking to rely on operating cash flows and internal accruals to fund its INR460,000m (US$5.5bn) expansion capex over the next five years, without the need for external borrowings. The cement arm of the Adani Group, comprising ACC Ltd and Ambuja Cements, has set an ambitious target to achieve a production capacity of 140Mta by FY28, from the current 67.5Mta.

“With the funds available from the cement operations, there is no need to resort to external borrowings for the planned expansion,” an official said.

Generating cashflows
Adani Cements estimates that to set up a 4Mta kiln and a 2Mta grinding facility would cost about US$80/t for a modern clinker line and just under US$40/t for grinding capacity. At the end of the June quarter, ACC and Ambuja Cements had INR118,000m (US$1.43m) in cash reserves. Therefore, it would require another INR330,000-340,000m to reach its projected capex figure. 

It expects to generate an EBITDA of INR175,000m annually until FY28. With the expected EBITDA generation, and accounting for taxes, dividends, and other outgoes, it expects to be left with sufficient cash reserves every year that will add to the capex reserves. When the Adani group acquired ACC and Ambuja Cements from Holcim and raised US$6.3bn, it did so without burdening the companies with principal or interest obligations, adds the group.

Expansion plans
In the next six months, the company plans to take its cement capacity to 83.6Mta, with over 6Mta coming from the acquisition of Sanghi industries by Ambuja Cements. The company will buy a 56.74 per cent stake for INR16,750m and make an open offer for another 26 per cent for INR7670m, amounting to a total outlay of over INR24,000m.

The acquisition of Sanghi Industries will give the company access to 6.6Mta of clinker capacity. It has approvals to set up kilns at four sites, of which two are already in place, with the potential for two more. Adani Cements has planned several brownfield expansions this year and over the next few years. Sanghi Industries has limestone reserves of 1bnta that will help with the expansion. 

It has already filed applications for approvals and started the process of acquiring land, while modernisation and expansion of its existing plants is ongoing.