The Hindu Business Line : Holcim to up stake in Ambuja

Building strategy
To purchase 3.9 per cent stake held by Ambuja Cement at Rs 154 per share.
It already has 43 per cent stake in Associated Cement Company.

Our Bureau

Mumbai, Aug 23

Swiss cement maker Holcim Ltd said on Thursday that it would invest about $1.34 billion (about Rs 5,500 crore) for increasing its stake in Ambuja Cements Ltd (ACL) from 32.3 per cent to 56.2 per cent.

Holcim has agreed to purchase 3.9 per cent stake held by the original promoters, Ambuja Cements Ltd (earlier Gujarat Ambuja Cement), at Rs 154 per share aggregating to Rs 902 crore ($220 million). As the deal exceeds the five per cent annual limit for creeping acquisition, the company has to make an open offer for another 20 per cent stake. This would cost the company another $1.12 billion (Rs 4,592 crore).

Open offer

Holcim Mauritius will make an open offer to shareholders of Ambuja Cements for 30.65 crore shares at Rs 154 per share, which represents a premium of around 20 per cent over the average price of the scrip on the NSE in the last two weeks, Ambuja Cement said in a notice to the stock exchanges on Thursday. Ambuja Cements shares closed Rs 132.75 on the BSE, 1.72 per cent higher than its previous close.

The company said Mr Suresh Neotia and Mr Narotam Sekhsaria, (orginal promoters of the company) will continue as Chairman and Vice-Chairman respectively of Amubuja Cement.

If the 20 per cent open offer goes through, the Swiss cement maker will have the controlling stake in Ambuja Cement. It already has a 43 per cent stake in Associated Cement Company (ACC), another major cement maker. Both the companies together have a cement capacity of 38 million tonnes per annum, the largest under any one group in India.

Strategy

A section of the market believes that Holcim’s strategy could be to finally delist ACL from the bourses. This could later be followed by the merger of both ACC and ACL.

“This acquisition signifies that Holcim is confident about the company’s future and, hence, willing to pick up shares at a premium to the current market price, said Mr V.K. Sharma, Head of Research, Anagram Stockbroking.

But some analysts believe that at Rs 154 per share, the EV/tonne valuation that works out to be $300, is pretty high.

“There is a further growth potential in the cement industry and the same is factored in the stock prices. However, the risk-reward ratio is not in favour for investors to buy at this level”, said Mr Lalit Thakker, Director-Research, Angel Broking.

Holcim, which entered India in 2005 by acquiring a stake in Ambuja Cement with an investment of Rs 3,500 crore, said that by 2010, its cement capacity in India will go up by 15 million to exceed 50 million tonnes.

“This expansion will enable ACC and Ambuja Cements to benefit from the projected market growth and create further added value for the Group,” Holcim said in a statement.

Globally, India is the second largest producer of cement, with production growth rate of 9.1 per cent during 2006-07 over the previous fiscal’s total production of 147.8 million tonnes. Of this, 9.3 million tonnes were exported.