Ambuja Cements Has Massive 65% Upside, Merger 'Game-Changer For Sanghi And Penna', Says Investec

The merger of billionaire Gautam Adani's cement arm with its two units is a key positive and will simplify group structure, said Investec, as it sees an upside potential of 65% for the stock.

Ambuja Cements Ltd.'s board approved the merger of its recently acquired entities—Sanghi Industries Ltd. and Penna Cement Industries Ltd.—with itself through separate schemes of arrangement.

The Adani Group cement-maker will issue 12 equity shares of face value of Rs 2 each for every 100 equity shares of Sanghi Industries of face value Rs 10.

Investec maintained a 'buy' on Ambuja Cements at a target of Rs 950 per share. "We find comfort in management reaffirming its growth goals, cost/synergy targets and ongoing initiatives to achieve the same."

The proposed merger scheme will help simplify group structure and compliance requirements, Investec said.

The Adani Group's cement arm is best placed to reap gains from cement themes like consolidation, sustainability, and ESG, according to Investec.

Ambuja Cement's move is set to boost efficiency, enhance competitive strength, and simplify compliance processes. Shareholders are poised to benefit from the company's focus on consolidation, streamlined operations, and massive production capacities.

Investors of Sanghi Industries will benefit from moving from a small-cap to holding shares in a large-cap giant, that is, Ambuja Cements, helping unlock significant value and growth prospects, Investec said.

Ambuja Cements stock rose as much as 1.38% during the day to Rs 579 apiece on the NSE. It was trading 0.08% higher at Rs 571.5 apiece, compared to a 0.05% decline in the benchmark Nifty 50 as of 09:56 a.m.

It has risen 8.7% during the last 12 months and has advanced by 9.6% on a year-to-date basis. The relative strength index was at 55.

Twenty-six of the 41 analysts tracking the company have a 'buy' rating on the stock, nine suggest a 'hold' and six have a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 13.8%.

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