Cement shares crack after weak Q2 results from Ambuja Cements

Eight cement stocks fell by 1.54% to 12.95% at 11:13 IST on BSE after cement major Ambuja Cements announced weak Q2 result after market hours on Wednesday, 24 July 2013.

ACC (down 4.31%), UltraTech Cement (down 3.01%), Prism Cement (down 2.56%), Heidelberg Cement India (down 1.54%), J K Lakshmi Cement (down 2.29%), Madras Cements (down 2.09%), India Cements (down 4.12%) and Ambuja Cements (down 12.95%), edged lower.

Meanwhile, the BSE Sensex was down 41.23 points, or 0.21%, to 20,049.45.

ACC had underperformed the market over the past one month till 24 July 2013, rising 5.66% compared with the Sensex's 8.36% gain. The scrip had also underperformed the market in past one quarter, rising 1.33% as against Sensex's rise of 4.75%.

Ambuja Cements had underperformed the market over the past one month till 24 July 2013, rising 5.84% compared with the Sensex's 8.36% gain. The scrip had also underperformed the market in past one quarter, rising 2.74% as against Sensex's rise of 4.75%.

Ambuja Cements' net profit fell 30.9% to Rs 324 crore on 8.6% decline in net sales to Rs 2346 crore in Q2 June 2013 over Q2 June 2012. The company announced Q2 result after market hours on Wednesday, 24 July 2013. Ambuja Cements is engaged in manufacturing and marketing cement and clinker for both domestic and exports markets.

ACC declares Q2 June 2013 results today, 25 July 2013. ACC manufactures cement and ready mixed concrete.

Meanwhile, Swiss cement major Holcim on Wednesday, 24 July 2013, announced a major restructuring of its India operations. The board of directors of Ambuja Cements on Wednesday, 24 July 2013, approved a proposal, wherein Ambuja will first acquire from Holderind Investments, Mauritius (Holcim), a 24% stake in Holcim India for a cash consideration of Rs 3500 crore, followed by a merger of Holcim India into Ambuja. The intra-group transaction will result in Ambuja holding 50.01% stake in ACC. The merger swap ratio proposed by two independent accounting firms and approved by Ambuja's board, is one Ambuja share for 7.4 Holcim India shares, translating into an implied swap ratio of 6.6 Ambuja shares for every ACC share, Ambuja said in a statement. Based on the approved merger ratio, Ambuja will issue 58.4 crore new equity shares of the company to Holcim, as consideration for the merger. Post the merger, the expanded capital base of Ambuja (post cancellation of the shares held by Holcim India in Ambuja and the issuance of new shares as aforesaid) will increase by 28%. Holcim will then own 61.39% of Ambuja and Ambuja in turn own 50.01% of ACC.

In addition, Ambuja's board also provided its approval for Ambuja to make commercially reasonable efforts to invest up to Rs 3000 crore to acquire an economic ownership in ACC of up to 10% without triggering a mandatory open offer.

Ambuja said that this restructuring exercise is expected to be EPS accretive from year one post completion of the transaction. There is synergy potential of about Rs 900 crore through supply chain and fixed cost optimization expected to be realised in a phased manner over two years post completion of the transaction.

Ambuja Cements said that the board of directors of the company at its meeting held on 24 July 2013 approved setting up of a 2.17 million tonnes per annum (MTPA) greenfield clinkerization project at Marwar Mundwa, District Nagaur, Rajasthan and three clinker grinding units of 1.5 MTPA capacity each at Marwar Mundwa, Rajasthan, Dadri (phase II), Uttar Pradesh and Osara, Madhya Pradesh at an approximate cost of Rs 3500 crore.

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