ACC-Ambuja deal reaches a critical stage

The battle for Holcim’s assets in India is getting hotter with many an interested party throwing their hat in the ring. Between its two assets, Ambuja Cement and ACC, with a combined capacity of 66 million tonnes, it is a hugely strategic asset for any buyer. With India’s infrastructure story gaining momentum, there has been action on the M&A story in cement, but this deal, if it goes through, will be a big-ticket one. It was in 2004 that Holcim entered India through the buyout of Ambuja Cement and later ACC – now the assets after almost two decades are on the block with the multinational said to be not very keen on India. Earlier, a global merger between Holcim and Lafarge had an impact in India, with assets in the eastern partner of the country being sold. Now, it is a complete exit. 

So, what is it that makes ACC and Ambuja so attractive? Jigar Shah, CEO, Kimeng Securities, says the ACC brand is a pioneer of sorts for several decades and is known across the country. 

“Ambuja is also known but is stronger in the north and west. The operational merger between the two took place many years ago wen Ambuja bought a stake in ACC. Besides, cost and distribution synergies have been in place for a long time,” Shah said. 

In the fray are JSW, a group with a presence in cement, steel and paints, apart from infrastructure major, Adani Group and more recently, Radhakishan Damani, the billionaire investor and promoter of Avenue Supermarts. The ACC-Ambuja is the second largest after market leader, UltraTech (capacity of 120 million tonnes) followed by Shree Cement. Considered a well-run operation, the acquirer will have access to modern plants, significant market dominance, brand equity and of course, getting a good chunk of the Indian story. Damani is an oddball since his interest in the sector is through a 23 per cent holding in south-based India Cement, an investment that has already yielded healthy returns.  

 Understandably, the ticket size will be large with the combined market capitalisation of ACC and Ambuja being in excess of Rs 1.2 lakh crore and a potential deal being upwards of $10 billion (over Rs 76,000 crore). 

Deven Choksey, MD, K R Choksey Securities, explains that any buyer will need to have a large balance sheet with some level of synergy accruing with the existing business. While he agrees it is a good fit for JSW, the Adani group is what seems more logical. 

“They have an ambition to grow in commodities and are already in key businesses like road construction. With a small cement business too, this can really put them in a tremendously strong position,” he said. 

That’s not all. The group’s play in ports means the ability to cut across west to east, which will reduce distribution costs. 

“They already are in the power business and are looking at ways to sell that a reduced rate. The FMCG business throws up agro-waste and that with a focus on hydrogen can really knock off power costs,” he explained. To top it all, there is always access to funds for the group with a large balance sheet. “The synergies for them are quite obvious and they are likely to be aggressive,” added Choksey. 

Globally too, there are issues around carbon footprint. Kimeng Securities’ Shah says most global companies want to move away from expansion or fresh acquisitions, especially when it comes to the cement sector. “Consolidation has been a feature of the global cement sector but not so much in India,” is his view. Shah puts his money on “a domestic business house with deep pockets, having vision for achieving significant decarbonization using sustainability measures and possible synergies in terms of other building products.” 

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