Ambuja Cement - Holicm makes Ambuja its flagship company in India - Angel Broking

Holcim has announced an ownership restructuring of its India operations, which will increase its stake in Ambuja Cements (Ambuja) from 50.5% to 61.4% in a two-stage deal. Post the completion of this deal Ambuja will become the flagship company of Holcim in India. Further Ambuja will hold 50.01% stake in ACC. Ambuja would further increase its stake in ACC by 10% for an investment of up to Rs.3,000cr through open-market purchases. The overall deal size stands at ~Rs.11,740cr. The entire deal is expected to be completed by 3QCY2014.

Two-stage deal

- In the first stage Ambuja will acquire a 24% stake in Holcim India Pvt Ltd (HIPL) a financial holding company ofully owned by Holcim for a cash consideration of Rs.3,500cr. At present, HIPL directly holds a 9.76% stake in Ambuja (15cr shares) and a 50.01% stake in ACC.

- In the second stage Holcim India will be merged into Ambuja. Post the merger Ambuja will own 50.01% stake in ACC and Holcim India's stake in Ambuja will stand cancelled. The swap ratio for the merger will be one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share. Ambuja will issue 58.4cr equity shares to Holcim, as consideration for the merger. Adjusted for the shares held by Holcim India in Ambuja, shares freshly issued will stand at 43.4cr (58.4cr-15cr) at a value of Rs.8,240cr. Thus the deal size approximately stands at Rs.11,740cr (Rs.3,500cr in cash and Rs.8,240cr in stock).

Impact of the deal

- Holcim expects the deal to bring synergistic benefits for both ACC and Ambuja combined by way of supply chain optimization, sharing of services and reduction in fixed cost. As per Management estimates the synergistic potential stands at Rs.780cr - Rs.900cr, which would be phased over a period of two years. Supply chain optimization by way of clinker and cement swaps is expected to bring benefits of Rs.360-420cr, while sharing of services, and fixed cost reduction could result in overall cost savings of ~Rs.420-480cr. However, we believe the quantum of synergistic benefits estimated by the company is quite optimistic as both the companies would continue to operate as independent entities.

- The consolidated capacity of ACC and Ambuja will be 58mtpa. Both the companies have a combined capacity addition pipeline of 10mtpa.

- The brands of both the company will continue to exist in the market.

Outlook and Valuation: The deal appears to be favouring Holcim (Promoter) over the minority shareholders of Ambuja Cement as ~90% of Ambuja's cash balance of ~Rs.3,800cr is getting repatriated to the promoter company. Further, we also expect Ambuja Cements to attract holding company discount on its holding in ACC. Ambuja Cements is fairly priced at current levels; we maintain a Neutral rating on the stock. We maintain Accumulate on ACC with a target price of Rs.1,361.

Source : Equity Bulls

Keywords