Ambuja, Orient, ACC shares soar on merger; analysts see synergies boost

Ambuja Cements to Merge ACC, Orient Cement news

Ambuja Cements share price rose over 4 per cent on the BSE on Tuesday as the cement major moved to consolidate its cement operations. The Adani Group company has proposed to merge its subsidiaries ACC and Orient Cement into the parent entity -- a step that analysts believe will simplify group structure, unlock synergies, and strengthen its competitive positioning in a consolidating industry.

 

Ambuja Cements shares gained 4.3 per cent to hit an intraday high of ₹563.25, whereas Orient Cement shares soared 9.8 per cent (₹180) and ACC shares added 1.4 per cent (₹1,802). By comparison, the BSE Sensex index was down 0.06 per cent at 9:22 AM.

 

The moves follow Ambuja Cements' announcement on Monday that ACC and Orient Cement will be merged into the company, subject to regulatory and shareholder approvals.

 

Post-merger, analysts reckon Ambuja Cements will emerge as one of the largest cement companies in India by capacity, in-line with the company's strategic plan to increase cement production capacity from 107 MTPA to 155 MTPA by FY28.

 

They highlight operational efficiencies, cost optimisation, and balance-sheet strengthening as key benefits of the move.

 

Motilal Oswal Financial Services (MOFSL), for instance, said the proposed amalgamation is a "positive step" towards streamlining Ambuja Cements' corporate structure and improving capital allocation. According to the brokerage, the merger will reduce complexity, eliminate cross-holdings, and enhance transparency for investors.

 

"The merger aims to enable more efficient allocation of capital and management, unlock scale benefits, and enhance long-term shareholder value. The merger will simplify and rationalise the network, branding, and sales promotion-related spending, helping optimise costs and improve margin by ₹100 per tonne. Besides, the merger will facilitate achieving targeted cost, margin expansion, and growth metrics over the medium-to-long term," it said in a report.  CATCH STOCK MARKET LIVE UPDATES TODAY

Deal contours

 

As per the Scheme of Arrangement, Ambuja Cements will issue 328 equity shares (face value: ₹2 per share) for every 100 equity shares (FV: ₹10/shares) of ACC, and 33 equity shares (FV: ₹2/share) for every 100 equity shares (FV: ₹10/share) of Orient Cement.

 

While the deal values ACC at par with the current market price, it values Orient Cement at around 9 per cent premium to Monday's closing price.

 

As the latest merger comes after the group's decision to amalgamate Sanghi Industries and Penna Cement with Ambuja, 12 equity shares of Ambuja will be issued for every 100 equity shares of Sanghi Industries. Ambuja, the company said, will also pay ₹321.5/share to the eligible shareholders of Penna Cement.

 

The deal will lead to an equity dilution of around 12 per cent for Ambuja Cement, and the promoter group holding in the company will reduce to 60.94 per cent from 67.65 per cent, post amalgamation of all the companies.

 

Analysts bullish on Ambuja Cement

 

As the deal could help create a "pan-India cement power house", analysts believe the merger could strengthen Ambuja Cements' pricing power and bargaining position with suppliers and logistics partners, given the expanded scale of operations.

 

The combined entity will have a wider geographic footprint, particularly strengthening its presence in central and southern India, where Orient Cement has meaningful exposure.  It will also help in achieving the management's target of increasing clinker capacity from 73 MT to 81MT by FY27 and 96 MT by FY28; and reducing total cost per tonne to ₹4,000 by FY26, ₹3,800/tonne by FY27 and ₹3,600-3,650/tonne by FY28.

 

"At current market price, we see the transaction as neutral (with a slight negative bias) for ACC shareholders while mildly positive for Orient shareholders. Further, commercial operations were already running as a consolidated unit (ACC + Ambuja + Orient + Penna + Sanghi); hence, we see this amalgamation having a neutral (with a positive bias) effect on our earnings estimates," said analysts at Emkay Global Financial Services.

 

They value Ambuja Cements stock at 16x EV/Ebitda, based on Sept, 2027, estimates, with an unchanged target price of ₹650 and an 'Add' rating. It, however, maintained its 'Sell' rating on ACC stock with a target of ₹1,600.

 

Motilal Oswal, too, said the deal appears to be neutral for ACC, but positive for Ambuja Cements shareholders.

 

The brokerage values Ambuja Cements share at 15.4x FY27E EV/Ebitda, and ACC at 7.1x FY27E EV/Ebitda. It maintained its 'Buy' rating on Ambuja with a share price target of ₹750.

  JM Financial analysts, meanwhile, expects blended Ebitda/tonne to increase from ₹795 in FY25 to ₹1,250 by FY28 amid higher volumes and improved profitability.  The brokerage maintained 'Buy' on Ambuja with a target of ₹700.

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