Ambuja Cements (SELL): Experts raise several red flags - Ambit

In an expert call hosted by us yesterday with Institutional Investor Advisory Services (IIAS), the experts highlighted that Holcim's rearrangement of its Indian entities is unfair on the minority investors, as: (a) such a merger will not achieve any significant synergies and Holcim should have done a complete merger; (b) minority shareholders are not given the right to participate in the Rs35bn payout by Ambuja to Holcim; and (c) the proposed post-merger Greenfield expansion of Ambuja at Rs45bn is nearly 2x the cost at which it was originally planned in CY06-07. Our post-event Ambuja valuation will be reduced to 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%. We expect market share losses for Ambuja and pressure on profitability from weak price recovery.

Source : Equity Bulls

Keywords