The real risk lies in the residual inventory of stock ull hold. So in nut shell, it's a play on orient being undervalued or not. If in some ones mind it's undervalued, then only he will go for this transaction, but then - why would he offer his shares in open offer for 8% at 50% acceptance ratio while keeping his 50% exposure for further gains.
However if a person thinks oriend is over valued and hence takes a pint on acceptamce ratio only. The 50% acceptance which gives him 8% on total capital has an assumption that orient price won't fallapost acquisition. And hence the 8% is not at all risk free in that sense.
Your assumptions and theories appear to be accurate across all three cases, and your observations have been duly reported as perceived.
Regarding the IDFC First case, the issue stemmed from weak fundamentals prevalent within the private banking sector as a whole.
In the matter of Orient Cement, I believe it represents an exceptional investment opportunity, particularly given its closer alignment with the Birla group rather than the Adani group. However, your table, indicating a potential timeline of 10 months to navigate prevailing uncertainties, casts a shadow over the valuation differential.
From a long time, the Birla Group assets were wanted by the other Birlas. Orient was a CK Birla company and Ultra Tech was a AB Group company. So, naturally as coming from the same tree, many assumed in the industry that Kesoram-Orient-many other small plants will fall into Ultratech's net. But, this went Adani's way was what I meant
Ah yes ! Thanks for clarifying 🙏🏽 I was wondering the same. That Adani went for it and paid a premium to acquire it ($112/ton) could be a signal of its quality. It could also be a signal of Adani just buying stuff without regard to valuation, can’t be sure. Lets see what happens!!
My reflections, having observed this space over the last 20 years, lead me to believe that such matters rarely conclude on a positive note.
Allow me to articulate my thoughts succinctly so that my perspective may benefit you and offer other readers a chance to gain alternative viewpoints. Blogging and fostering a thread of meaningful discussions encourage mutual understanding and an exchange of ideas. I urge fellow readers of this blog to contribute their insights and opinions, thereby nurturing an ecosystem that continues the discourse initiated so thoughtfully by you, Rahul Sir.
To begin, the L&T Cement acquisition has always seemed like a dubious affair to me. There was a lack of transparency regarding valuations, and it is unclear who gained personal benefits from the deal back then. This transaction eventually gave rise to what we now know as UltraTech Cement—a brand that has become a colossus in India’s cement industry, leading in capacity, technology, and operational efficiency. Their advanced IT systems provide a granular understanding of the business at every level, which is commendable in an industry traditionally focused solely on production, sales, and profit margins.
Next, Adani’s aggressive approach is noteworthy. The group is adept at raising cash and leveraging debt, which speaks volumes about its ability to close deals, secure contracts, and execute them—albeit through methods that sometimes raise eyebrows. While it seems impressive when the music is playing, as the saying goes, none of its creations have yet stood the test of time, enduring for decades or centuries. It evokes a sentiment of fragility amidst this dazzling rise, heavily reliant on political and other connections.
Moving to the western coast of India, the cement industry historically flourished in pockets built around limestone availability. Production facilities, staff quarters, and entire ecosystems sprouted around these units, giving rise to self-sufficient towns equipped with schools, grocery shops, and other necessities. Over time, these scattered units consolidated into giants like ACC and Ambuja, now part of Adani. Today’s narrative focuses on metrics like valuation and EBITDA per tonne, overlooking critical legacy factors like proximity to raw materials, the calibre of engineering talent at each plant (civil, mechanical, and chemical engineers), and long-term sustainability. During crises, reliance on German and Russian expertise for machinery like recovery turbines, furnaces, clinker-making units, and gypsum systems was crucial—a testament to the industry’s old-world charm and complexity.
Amidst this evolution, politics casts a long shadow. Consider Penna Cement, recently acquired by Adani. This didn’t happen overnight. Penna Cement was preparing for an IPO, as reported in Business Standard and Business Line. The deal coincided with the resignation of Andhra Pradesh’s Chief Minister, Jagan Mohan Reddy, a figure widely regarded as corrupt and immensely wealthy, particularly in regions where Penna Cement operates. The very next day, Pratap Reddy chose to sell to Adani. Was this mere coincidence, or was it a calculated move to pass the baton to a larger corporate entity, shielding himself from scrutiny by state authorities or the CID?
Similar instances abound, such as the reported arm-twisting by R.K. Damani in India Cements or the sidelining of a towering figure like N. Srinivasan, who once dominated both the ICC and BCCI.
The interplay of corporate manoeuvring, political alliances, and legacy systems creates a fascinating yet unsettling tapestry in this sector. Your thoughts?
Thank you Aravind ji, This is an amazing insight. I've gone ahead and started a cement thread in Substack chat based on your answer. Thought this was useful for anyone interested in the sector. Thank you for sharing
The real risk lies in the residual inventory of stock ull hold. So in nut shell, it's a play on orient being undervalued or not. If in some ones mind it's undervalued, then only he will go for this transaction, but then - why would he offer his shares in open offer for 8% at 50% acceptance ratio while keeping his 50% exposure for further gains.
However if a person thinks oriend is over valued and hence takes a pint on acceptamce ratio only. The 50% acceptance which gives him 8% on total capital has an assumption that orient price won't fallapost acquisition. And hence the 8% is not at all risk free in that sense.
Your assumptions and theories appear to be accurate across all three cases, and your observations have been duly reported as perceived.
Regarding the IDFC First case, the issue stemmed from weak fundamentals prevalent within the private banking sector as a whole.
In the matter of Orient Cement, I believe it represents an exceptional investment opportunity, particularly given its closer alignment with the Birla group rather than the Adani group. However, your table, indicating a potential timeline of 10 months to navigate prevailing uncertainties, casts a shadow over the valuation differential.
Hi, Thanks Aravind. Can you please clarify what you mean by "closer alignment with Birla Group"? Why do you think that will impact anything etc?
From a long time, the Birla Group assets were wanted by the other Birlas. Orient was a CK Birla company and Ultra Tech was a AB Group company. So, naturally as coming from the same tree, many assumed in the industry that Kesoram-Orient-many other small plants will fall into Ultratech's net. But, this went Adani's way was what I meant
Ah yes ! Thanks for clarifying 🙏🏽 I was wondering the same. That Adani went for it and paid a premium to acquire it ($112/ton) could be a signal of its quality. It could also be a signal of Adani just buying stuff without regard to valuation, can’t be sure. Lets see what happens!!
My reflections, having observed this space over the last 20 years, lead me to believe that such matters rarely conclude on a positive note.
Allow me to articulate my thoughts succinctly so that my perspective may benefit you and offer other readers a chance to gain alternative viewpoints. Blogging and fostering a thread of meaningful discussions encourage mutual understanding and an exchange of ideas. I urge fellow readers of this blog to contribute their insights and opinions, thereby nurturing an ecosystem that continues the discourse initiated so thoughtfully by you, Rahul Sir.
To begin, the L&T Cement acquisition has always seemed like a dubious affair to me. There was a lack of transparency regarding valuations, and it is unclear who gained personal benefits from the deal back then. This transaction eventually gave rise to what we now know as UltraTech Cement—a brand that has become a colossus in India’s cement industry, leading in capacity, technology, and operational efficiency. Their advanced IT systems provide a granular understanding of the business at every level, which is commendable in an industry traditionally focused solely on production, sales, and profit margins.
Next, Adani’s aggressive approach is noteworthy. The group is adept at raising cash and leveraging debt, which speaks volumes about its ability to close deals, secure contracts, and execute them—albeit through methods that sometimes raise eyebrows. While it seems impressive when the music is playing, as the saying goes, none of its creations have yet stood the test of time, enduring for decades or centuries. It evokes a sentiment of fragility amidst this dazzling rise, heavily reliant on political and other connections.
Moving to the western coast of India, the cement industry historically flourished in pockets built around limestone availability. Production facilities, staff quarters, and entire ecosystems sprouted around these units, giving rise to self-sufficient towns equipped with schools, grocery shops, and other necessities. Over time, these scattered units consolidated into giants like ACC and Ambuja, now part of Adani. Today’s narrative focuses on metrics like valuation and EBITDA per tonne, overlooking critical legacy factors like proximity to raw materials, the calibre of engineering talent at each plant (civil, mechanical, and chemical engineers), and long-term sustainability. During crises, reliance on German and Russian expertise for machinery like recovery turbines, furnaces, clinker-making units, and gypsum systems was crucial—a testament to the industry’s old-world charm and complexity.
Amidst this evolution, politics casts a long shadow. Consider Penna Cement, recently acquired by Adani. This didn’t happen overnight. Penna Cement was preparing for an IPO, as reported in Business Standard and Business Line. The deal coincided with the resignation of Andhra Pradesh’s Chief Minister, Jagan Mohan Reddy, a figure widely regarded as corrupt and immensely wealthy, particularly in regions where Penna Cement operates. The very next day, Pratap Reddy chose to sell to Adani. Was this mere coincidence, or was it a calculated move to pass the baton to a larger corporate entity, shielding himself from scrutiny by state authorities or the CID?
Similar instances abound, such as the reported arm-twisting by R.K. Damani in India Cements or the sidelining of a towering figure like N. Srinivasan, who once dominated both the ICC and BCCI.
The interplay of corporate manoeuvring, political alliances, and legacy systems creates a fascinating yet unsettling tapestry in this sector. Your thoughts?
Thank you Aravind ji, This is an amazing insight. I've gone ahead and started a cement thread in Substack chat based on your answer. Thought this was useful for anyone interested in the sector. Thank you for sharing