Ambuja Cements Merger With Holcim India Approved
Waseem Ahmad / 27 Mar 2014
Ambuja Cements got the green signal from the High Courts of Gujarat and New Delhi for an amalgation with Holcim India. As per its proposal Ambuja Cements will first acquire 24% stake in Holcim India for a cash consideration of Rs 3500 crore. In long term both the companies will get the benefits from the amalgamation.
As per its proposal Ambuja Cements will first acquire 24% stake in Holcim India for a cash consideration of Rs 3500 crore from Holderind Investment (Holcim), followed by a merger of Holcim India into Ambuja Cements. These intra group transactions will result in Ambuja Cements holding 50% stake in ACC, which is a 50% subsidiary of Holcim India.
Ambuja Cements will issue its one share for 7.4 shares of Holcim India and 6.6 shares of Ambuja Cements for one share of ACC Cements. So based on the approved merger Ambuja Cements will issue 197.75 crore new equity shares. Out of it 58.4 crore shares will be given to Holcim and it will result in 61.39 % holding of Holcim in Ambuja Cements because Holcim has a pre merger holding of 50% in Ambuja Cements. As a result Ambuja Cements will own 50% of holding in ACC. Further, Ambuja Cements intents to invest up to Rs 3000 crore, which would increase its stake by more than 10% and strengthen its ownership in ACC.Coming to the synergies of the amalgamation, the transaction will allow Ambuja to capitalise on existing platform of Holcim India. In addition it will also unlock significant synergies and benefit Rs 900 crore per annum to be realised in a phased manner over two years period for both ACC and Ambuja Cements and prepare ground for further optimisation of the group structure.
On operational front, Ambuja Cements is having considerable presence in north region with market share of 28% and around 12% in west region, but having a poor presence in south and central region. While ACC cement is having good presence (5-12% in all regions) across the country due to its plant location in all regions. As per FY'13 annual report of these companies, Ambuja Cements is having 27mtpa installed cement production capacity while ACC is having an installed production capacity of 23mtpa. Combing these together the installed capacity of the company comes near to 14% of total cement production capacity of India. So in near future we can expect these companies to be a market leader of Indian cement industry.Ambuja Cements performance during 9MFY14 was satisfactory on account of cost optimisation and increase in income from exceptional item. During 9MFY14 the company posted a profit of Rs 1278 crore with a marginal decrease of 1% over 9MFY13, while its topline dropped by 6% to Rs 9191 crore due to low demand of cements during the year.
At present with a market price of Rs 192.05 per share, the stock is trading at 25 times of its trailing 12-moths earning with an increase of 3.06% over previous close and ACC is trading at 22 times of trailing 12-months earning with an increase of 1.25% over previous close. In long term, we can definitely say that both the companies will get benefit (synergy) from the amalgamation.
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