A Bloomberg report suggested that Holcim Ltd., the world’s leading cement maker, is considering a possible sale of businesses in India, including Ambuja Cements Ltd. As per the report, the discussions are in the initial stage and the transaction may not take place. Holcim controls 63.1% of Ambuja, which has a market value of about $9.6 billion.
Entry of any new deep-pocketed player through a possible buy-out of Holcim’s stake, in the view of global brokerage JP Morgan Ambuja Cements (and indirectly ACC) will be negative for the Indian cement industry as capacity expansion may accelerate (historically ACC and ACEM have been slow in cap add).
Analysts at JP Morgan have a neutral rating on the shares of Ambuja Cements with revised target price for December-2022. 380, given the expensive valuations following the recent run-up and weak industry fundamentals.
Given the total cost of the transaction (about $10 billion), JPM believes that only a handful of Indian business houses have the potential to be buyers of Holcim’s stake, hence a large premium to the current stock price. Difficult to see.
Any transaction would be huge, and both ACC and Ambuja would involve open offers as Holcim directly controls Ambuja and indirectly controls ACC.
“In our view, outright purchase of Holcim’s stake in Ambuja Cements would result in loss to the buyer 462 billion, a mandatory open offer (26%) in both ACC and Ambuja would be worth another 298 billion, taking the total cost 780 billion after successful open offer, the new buyer’s stake will be 89 per cent in Ambuja and 81 per cent in ACC and it remains to be seen whether the buyer comes down to 75% or de-lists the companies,” JPM highlighted.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.