Shares of key cement makers ACC Ltd and Ambuja Cements Ltd are back on investors' radar after the Lok Sabha approved the Mines and Minerals (Development and Regulation) Amendment Bill last week.
Among the many amendments made to the bill, the key for the cement sector is removal of fees for transfer of mining leases. Analysts say, once this bill becomes a law, it should aid the mergers and acquisition process for the cement sector. With that, the focus is back on the potential merger between ACC and Ambuja, which are controlled by the same parent Lafarge Holcim.
In a note dated 22 March, foreign research house Citi said, "Currently, Ultratech pays a transfer fee of Rs64/tonne of limestone on limestone produced from the mines acquired from JP Associates and Century. The new ruling may lead to merging assets acquired from Binani Cement (currently held as a subsidiary). We think the change is also positive for ACC/Ambuja's potential merger (subject to other legal clearances and stamp duty payment)."
Limestone is one of the key raw materials that is required for manufacturing cement. It should be noted that issues around transfer of limestone mines were cited as one of the reasons for not pursuing the ACC-Ambuja merger in 2018.
"These companies then (in 2018) said that they will continue to work together to maximise synergies - which we saw scaling up only in 2020. Outlook on merger isn't clear yet, however, any company intimation regarding any consideration of the same could be re-rating trigger; holding company discount in Ambuja should go away as well," domestic brokerage house Antique Stock Broking Ltd said in a report on 23 March, where it has reviewed the 2020 annual reports of ACC and Ambuja.
Stocks of the two companies scaled to their new 52-week highs on the NSE on 23 March.
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