ACC and Ambuja Cements rose on Monday after their promoter Switzerland-based Holcim unveiled an all-share deal to buy France's Lafarge. The deal will create the world's biggest cement maker with a market value of around $55 billion. (Read the full story here)
The transaction would be the industry's biggest-ever tie-up, and would help the companies slash costs, trim debt and better cope with the soaring energy prices and weaker demand that have hurt the sector since the 2008 economic crisis.
The merger of ACC, Ambuja and Lafarge in India would result in India's largest cement company, with a capacity of nearly 69 MT and a market share of nearly 20 per cent, Barclays says. The merged entity will pip the current leader UltraTech, which has a capacity of nearly 58 MT and market share of nearly 17 per cent as of end-2013, the brokerage added.
"Post this potential merger, the new entity could emerge as the clear leader in the eastern and northern market's in India and a close second to current regional leader, UltraTech, in the western market," Chirag Shah of Barclays says.
Lafarge, which is a relatively new entrant and mostly concentrated in the eastern part of the country, will gain from a merger with ACC and Ambuja, which are older and more established brands in India, the brokerage says.
"Post the potential merger, there could be a consideration for brand consolidation leading to better margins for Lafarge India's product offering. Lafarge could also benefit from lower financing costs as Holcim currently has a better credit rating than Lafarge," Barclays says.
However, the deal could be drawn-out for a long time as there would be potential antitrust problems in several countries including India, where the merged entity could have a dominant position, Barclays noted.
As of 1.20 p.m., Ambuja Cements traded 1.6 per cent higher at Rs 206.55, while ACC traded 1 per cent higher at Rs 1,379. The stocks outperformed the broader Nifty, which traded 0.6 per cent lower.
Other cement stocks such as UltraTech gained 3 per cent on hopes of consolidation in the Indian market.
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