Ambuja Cement (SELL): A one-sided transaction - Ambit

Holcim's questionable rearrangement of its Indian operations (of Ambuja acquiring a 50.01% stake in ACC) masked the 8-10% slip in Ambuja's 2QCY13 operating numbers. Whilst the downgrades in the operating numbers will impact Ambuja's valuations, we expect a sharper adverse impact from this merger. Note that Holcim gets to take out nearly all of Ambuja's cash (Rs35bn) at only the promise of some future synergies. In light of this rearrangement, our post-event valuation of Ambuja will be Rs155—Rs111 for its cement business (implying 9.0x one-year forward EBITDA) and Rs44 for its ACC ownership—factoring in gradual synergy benefits, a 20% holding company discount and a higher WACC of 14% (earlier 13.5%). Capex commitments (~Rs60bn) and further stake increases in ACC can reduce dividend payouts or lead to debt intake over CY13-16. Maintain SELL with a TP of Rs163 for stand-alone Ambuja.

Source : Equity Bulls

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