Adani Entry To Improve Fortunes Of India's Cement Sector, Say Analysts
Shares of market leader UltraTech Cement and best performer Shree Cement have declined following the Adani-Holcim India deal.
Billionaire Gautam Adani has agreed to buy Holcim Ltd.'s Indian subsidiaries in a $10.5-billion (over Rs 81,000-crore) deal.
Adani will acquire Holcim's stake in Ambuja Cements Ltd. (63.19%) at Rs 385/share and in ACC Ltd. (4.48%) at Rs 2,300 apiece. The acquisition will trigger an open offer, taking the overall purchase value to $10.5 billion. That implies an enterprise value of $163 a tonne, according to BQ Prime’s calculation.
Shares of ACC rose over 7% and Ambuja Cements advanced nearly 3.5% in early trading on Monday. The benchmark Nifty 50 was trading 1% higher at the time.
Brokerages view the deal as a positive for India's cement sector as they do not expect a fight for market share by cutting prices.
Here's what analysts made of Adani's acquisition of Ambuja Cements and ACC:
Adani's strategy would be keenly watched.
Premium valuations could mean higher targeted unit profitability.
Targets based on maintaining brand premium, savings from royalty reduction and other synergies. Retaining brand position is key for sustained profitability
Fight for market share by reducing cement prices is less likely.
Maintains 'buy' for ACC; revises target price from Rs 2,550 to Rs 2,850 (current market price: Rs 2,235).
Upgrades Ambuja Cement 'buy' from 'neutral', target price revised from Rs 410 to Rs 440 (current market price: Rs 367.90).
Adani emerges as the second largest player in Indian cement industry.
Adani now becomes a 70 million-tonnes-a-year capacity player, next only to UltraTech Cement.
ACC and Ambuja Cement become direct, identifiable individual promoter-controlled entities.
Adani has the potential to turn around the fortune of the whole industry, and not just theirs.
Upgrade target multiples for ACC from 13x to 15x and for Ambuja Cement from 16x to 18x.
Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Pvt. Ltd., the owner of BQ Prime.