Ambuja Cements, ACC shares surge post Adani-Holcim deal: Here’s what analysts think

Adani Group on Sunday said it has clinched a deal to acquire a controlling stake in Holcim’s cement business in India for $10.5 billion. This marks the entry of the ports-to-energy conglomerate into the cement sector in the country. Adani Group will acquire 63.1 per cent of Ambuja Cements along with related assets. Ambuja’s local subsidiaries include ACC, which is also publicly traded.

Through its subsidiaries, Holcim holds 63.19 per cent in Ambuja Cements Ltd and 54.53 per cent in ACC (of which 50.05 per cent is held through Ambuja Cements). This is the largest-ever acquisition by Adani, which beat JSW and Aditya Birla groups to the deal. It is India’s largest-ever M&A transaction in the infrastructure and materials space.

Holcim’s exit from India follows several high-profile departures of multinational companies, including Ford, General Motors, Harley Davidson, MAN Truck, Hutchison, Etisalat, Fidelity, and Citibank, which sold its retail business recently, and some investment banks.

Speaking on this M&A impact and the outlook of both the stocks, Ravi Singh, vice president and head of research at Share India Securities told indianexpress.com, “The transaction would help the companies slash costs, trim debt and better cope with the soaring energy prices and weaker demand that have hurt the sector so far. Also, post the potential merger, there could be a consideration for brand consolidation leading to better margins and higher return on capital employed for the two companies.”

He added that both ACC and Ambuja stocks are good for long term investment with a target of Rs 2450 and Rs 420 respectively.

Vinod Nair, head of research at Geojit Financial Services told indianexpress.com that this M&A is good for both the companies as they were under-performing the industry peers. “It can be slightly better for Ambuja than ACC as Ambuja is aggressive and has a better presence in the market than ACC,” he said.

Nair further added that it will lead to value creation and said that Adani group will have strong plans for the future and they would look to have a strong capacity in the future.

Speaking on the cement industry, Nair said that in the short term this deal will be positive for the industry but in the medium to long term, the addition of a new competitor the companies with smaller market share may face difficulties. Increasing raw material costs, transportation etc. are the factors that may impact the smaller competitors in the long term.

Santosh Meena, head of research at Swastika Investmart said that the cement sector will see additional consolidation and increased competition as a result of this acquisition. he said that this acquisition marks the groups foray into cement sector which is current having tailwinds due to government’s focus on infrastructure and revival of housing demand. “Another point to note is that this acquisition aligns with group’s focus on infrastructure and synergistic to its other businesses like power, coal and energy, ports and logistics.”

However, on stocks front, he said that his brokerage is unable to comment on the group’s stock-related actions due to a lack of clarity regarding how the acquisition will be structured and regulatory approvals.”