Ambuja, ACC shares zoom on merger buzz

Shares of Swiss cement major Holcim-owned Ambuja Cements and ACC Ltd zoomed today, on market buzz of their merger. Holcim has 46.38 per cent stake in Ambuja Cements and 46.2 per cent in ACC.

On the Bombay Stock Exchange, Ambuja stocks were up 7.7 per cent or Rs 11.70 to close at an all-time high of Rs 163.10, while those of sister concern ACC closed at Rs 1,115.75, up 2.4 per cent or Rs 26.25. The two together have a fifth of the cement market.

Earlier this year, the cement business of the Aditya Birla Group was similarly restuctured, with Grasim’s assets transferred in the kitty of UltraTech Cement.

However, when asked, Holcim denied any merger proposal. To an email from Business Standard, the Switzerland-based company’s spokesman said, “There are no such discussions of any sorts ongoing.”

Ambuja’s shares, have been continuously rising despite its poor quarterly performance in the September quarter. The company posted a decline of 52 per cent in its net profit at Rs 152 crore, compared with Rs 318 crore in the corresponding previous quarter. ACC had an 80 per cent in its profits at Rs 86 crore, against Rs 415 crore during the quarter last year.
 

RIGHT MIX?
	Ambuja	ACC
Capacity in 2010 (million tonnes)	25	30
Market capitalisation (' crore)	24,881	20,947
Share price rise in last  five trading sessions (%)	16.71	13.37
Decline in net profit* (%)	52.20	79.20
Sales growth this year** (%)	8.60	-1.68
*In September quarter   **Between January and October 2010

Collectively, ACC’s capacity of 30 million tonnes per annum, coupled with Ambuja’s 25 mt, outpace UltraTech Cement’s overall capacity of 52 mt currently. On the market capital front, too, ACC and Ambuja put together have a market capitalisation of Rs 45,828 crore, far ahead of UltraTech’s Rs 30,827 crore.

Ambuja and ACC have their equally strong established brands. “These two companies cater to different markets, except the North, where both have dominant presence,” said industry experts.

“Even if these two companies are merged, there would not be a big financial gain. Maybe this will lead to some cost cuts, but I do not forsee it to be more than three-four per cent,” said a Mumbai-based research head at a domestic brokerage house.

At the current share price, enterprise value per tonne of Ambuja Cements has risen close to $215 per tonne, far ahead of the industry’s average of $130-140 per tonne. ACC’s valuation is $135 per tonne. According to industry analysts, Ambuja’s shares are highly overvalued. “When the shares were around Rs 120, our house put the stock in the over-valued category. However, since then, the stock has continuously outpeformed our expectations,” said an analyst at another broking house. She added there was no justification for Ambuja shares to rally so much.

The country has a total cement capacity of 275 mt per annum. Global majors like Holcim, French major Lafarge, Italcementi, German major Heidelberg Cement, French major Vicat and Portuguese firm Cimpor, among others, have taken a foothold, apart from the many India-based companies.