Summary: At 10.5 billion dollars, Adani Group’s buy out of Holcim India’s stake in Ambuja Cements and ACC marks India’s most expensive deal in the sector. With this, the Group has also leaped to second position in the cement industry, coming only after Ultratech Cement. While Holcim owns 63.19% stake in Ambuja Cements and 4.48% in ACC; Ambuja Cement, in turn, owns 50.05% in ACC. The Adani family plans to make an open buy offer to buy 26% stake in these two companies from non-promoter shareholders, subject to regulatory approvals. Once approved, Adani Group will enjoy Ambuja and ACC’s combined capacity strength of 67.5 metric tonne. Going forward, analysts believe that Adani Group may consider the merger of Ambuja Cement and ACC in the medium term as it will help them rationalise fixed cost quotients at both these entities. Market analyst G Chokkalingam, for instance, believes that the acquisition would trigger re-rating of ACC and Ambuja Cements as businesses may merge under one entity. Those at Kotak Institutional Equities, too, believe that the Ebitda per tonne for Ambuja and ACC is lower than Ultratech Cement. And this gap can be covered by Adani through synergy benefit from eventual merger of the two companies. The benefits, it says, may include saving from existing royalty payment to Holcim, investments in cost-saving projects, and margin expansion opportunity through brownfield capacity expansion. That said, some analysts believe Adani may go for brand consolidation, rather than outright merger. Speaking to Business Standard, Uttam K Srimal, Senior Research Analyst, Axis Securities says, ACC, Ambuja lost market share over last few years, but Adani’s acquisition will bring aggression in expansion. While there may be more consolidation in the sector going ahead, there may also be brand consolidation as Ambuja and ACC hold strong brand presence across India. That said, analysts see limited near-term synergies from the deal. According to Gaurav Dua, Head – Capital Market Strategy, Sharekhan by BNP Paribas, Ambuja and ACC are already operating at high utilisation levels. The takeover is unlikely to provide immediate output boost, he says adding that medium-term may see backward integration benefits and aggressive expansion will be eyed. Overall, from an investment view point, analysts expect ACC to see higher re-rating as the stock has, traditionally, been an affordable bet. At the bourses, ACC closed nearly 4% higher at 2,195 rupees per share, while Ambuja Cements rose 2.6% to 368 rupees per share on the BSE in Monday. In comparison, the benchmark indices closed 0.3% up. As regards Tuesday, markets will track the listing of insurance behemoth Life Insurance Corporation of India. Shares of LIC were trading at a discount of Rs 15-20 a piece over its issue price of Rs 949 in the grey market on Monday, suggesting a weak listing today.
