Ambuja Cements, ACC scrips strengthen as merger talks begin

Shares of ACC and Ambuja Cements jumped around 3 per cent and 5 per cent respectively, on the NSE on Monday after the boards of the two companies informed the stock exchanges on Friday (post-market hours) that they are exploring a possible merger.

The merger would create the second-largest cement company in India with a capacity of 63 million tonnes. UltraTech Cement, which was created by consolidating the cement operations of L&T and the AV Birla Group, will still remain the largest cement company in India. A merger is always good for a commodity company as it brings a lot of operational synergies. It applies to ACC-Ambuja as well. Analysts pointed out various benefits such as large balance sheet, locational advantages (a pan-India ACC with South-focussed Ambuja), better logistics management, common resource planning (limestone mines), lower overhead costs including manpower, improvement in efficiencies and better blended realisations.

Hence, upside in the stocks are likely to continue as the duo’s valuation is still at a discount to UltraTech Cement, said an analyst. The prospects of Ambuja Cements’ stock is brighter as ACC could be merged with the company, according to sources. However, like any merger, there will be hurdles too. CLSA pointed out that transaction costs, limestone mine transfer and branding (both are strong brands) may either make the merger less attractive or slow down the merger process. Currently, both ACC and Ambuja are group companies of LafargeHolcim (LH), which was formed by the merger of Lafarge of France and Holcim of Switzerland. LH currently owns 66 per cent and 55 per cent in ACC and Ambuja Cements, respectively.