Ambuja Cements was the worst performer on the 50-share Nifty benchmark, a day after the cement maker's Swiss parent Holcim said it will raise its stake in the company in a bid to cut costs.
Ambuja Cements shares traded 10 per cent lower at Rs 171.25 as of 11.45 a.m. compared to flat trade in the broader markets. The stock had earlier hit a low of Rs 163.20 against Wednesday's close of Rs 191.10. ACC shares were down over 4 per cent at Rs 1,179. (Track stock)
The Ambuja-Holcim deal:
Under the deal, Ambuja will pay Rs 3,500 crore to buy a 24 per cent stake in Holcim India, the Swiss cement maker's local holding company and then Holcim India will be merged into Ambuja through a share swap. Ambuja will also issue to Holcim 58.4 crore new shares, valued at about Rs 11,200 crore at current market value. This will increase Holcim's stake in Ambuja to 61.39 per cent from just over 50 per cent. Ambuja will in turn acquire Holcim's 50.01 per cent stake in ACC.
The deal is expected to bring cost savings of about $150 million per year to Ambuja and ACC, Holcim said.
What analysts say:
Rakesh Arora of Macquarie told NDTV that the deal to take out money from India because Holcim's credit rating is at risk. Holcim will get the cash from Ambuja's book, Mr Arora said.
"Except for Asia, where Holcim is growing, they are stagnant pretty much everywhere else. They have to service their debt... their position is a lot more critical today," Sanjay Ladiwala, cement stockists & dealers association of Bombay said.
Domestic brokerage IDFC said the transaction is negative for Ambuja's minority shareholders.
Most of the minority shareholders will oppose this deal, but Holcim has more than 50 per cent stake in both the companies (Ambuja and ACC), so they are in the majority seat, he added.
Mr Arora said the new structure is better than what they had till now, but for the next two years, the deal is earnings per share dilutive by 4-5 per cent.
Yesterday, Holcim chief executive Bernard Fontana had said that the deal is expected to be neutral on Holcim's earnings per share in the first full year following completion and will be accretive thereafter.
Macquarie has a "underperform" rating on Ambuja with a target of Rs 137, nearly 30 per cent lower that Wednesday's closing price of Rs 191.
Morgan Stanley said the Street will focus on Holcim getting Rs 3,500 crore cash from Ambuja.
Cement Industry under pressure:
The deal comes at a time when local cement companies in India are experiencing a drop in demand and pressure on earnings due to a slowdown in home building and infrastructure projects.
"The cement industry is facing huge oversupply and demand has been weak. Despite earnings downgrade in the last six months, there's more room for downgrades," Mr Arora said.
Ambuja vs ACC:
Shareholders of ACC are much better placed, Mr Arora said, because the stock has support on the downsides. However, cement stocks will be under pressure and Ambuja, particularly, will be under pressure because of the deal.
Market analyst Sarvendra Srivastava said Ambuja Cements has support at 170-175 levels.
(With inputs from Reuters)
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