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The race for acquiring the controlling stake of Holcim Group in Ambuja Cements-ACC combine is getting hotter by the day with UltraTech Cement, too, throwing its hat in the ring.
Other cement producers JSW Cement, Adani Cement and Shree Cement have already completed the first round of discussion with Holcim and waiting for a formal announcement on the sale by Holcim Group, which entered India with high hopes.
The acquisition of the Holcim stake will pole-vault the buyer to become the second-largest player with a combined capacity of 66 million tonnes per annum (mpta) going up to 80 mtpa with the completion of expansion projects.
The entry of the country’s largest cement company UltraTech has surprised many industry watchers, as it will be difficult for the company to receive Competition Commission of India (CCI) approval; it is already the strongest player in key markets where Ambuja-ACC combine have presence.
Incidentally, UltraTech itself is expanding its capacity by putting up a 19.5 mtpa grinding and 11.1 mtpa clinker capacity, which are expected to go live by end-FY’23.
Apart from brownfield expansion, UltraTech, which has production capacity of 120 mtpa across the country, has consolidated its position by acquiring top assets of JP Associates, Binani Cement and Century Cement.
‘May need CCI approval’
Vinod Nair, Head of Research, Geojit Financial Services, said UltraTech being a market leader, acquisition of ACC and Ambuja will require CCI approval considering the risk of regional-wise monopoly issue.
"Being a big-size deal we will have to assess the financial structure, current cash flow, investment and debt position to conclude the probability of the transaction," he added.
The Holcim group holds 63 per cent stake in Ambuja Cements, which in turn owns 50.05 per cent stake in its subsidiary ACC.
Ambuja has a grinding capacity of 31 mtpa and plans to expand it to 40 mtpa in the next two years. About 42 per cent of its grinding capacities are in the North, followed by 28 per cent, 26 per cent and 5 per cent in the West, East and Central regions.
Similarly, ACC has a grinding capacity of 35 mtpa, which is being expanded to 40 mtpa by the first half of 2023. Post-completion of the ongoing expansion, ACC will have 23-27 per cent grinding capacities in the East, South and Central regions, and 15 per cent and 10 per cent capacity in the North and Western regions.
‘Leveraging balance sheet’
Sanjeev Kumar Singh, Research Analyst, Motilal Oswal, said the complete exit of Holcim will need an investment of $10.2 billion including an open offer of $3.9 billion at current market capitalisations of Ambuja Cements and ACC. At current market-cap of ACC and Ambuja Cements, the deal would have an enterprise value of $185 per tonne.
The huge investment may also lead to leveraging the balance sheet of the acquirer that generally is not favoured in a cyclical business, he said.
Holcim’s balance sheet does not seem to be leveraged and hence, it should not be in a hurry to exit Indian operations, he added.
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