Morgan Stanley has issued a fresh note on Ambuja Cements, maintaining a bullish 'overweight' rating on the counter, in the wake of a major announcement to amalgamate its subsidiaries ACC Ltd. and Orient Cement.
The positive outlook has led to a rally in Ambuja shares, which is trading with gains of around 3%, compared to Monday's closing price of Rs 539.95. The stock reached its highest level in over a month.
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In its latest note, the brokerage firm has issued an 'overweight' rating on Ambuja Cements with an unchanged target price of Rs 650.
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Ambuja Cements shares zoom after positive Morgan Stanley report. (Photo: NDTV Profit)
The firm considers the recent development as a positive note, as it essentially streamlines the Adani Group's cement portfolio.
Indeed, by merging ACC and Orient into Ambuja, the move removes the overhang of managing multiple listed companies.
Morgan Stanley's analysis of the share swap ratios suggests a balanced outcome for stakeholders, with the deal viewed as a 'neutral' for minority shareholders of ACC while being a 'positive' for minority shareholders of Orient Cement.
Apart from simplifying the structure, the amalgamation is expected to unlock significant value through operational synergies between the two cement companies.
The brokerage, therefore, estimates that the integration will drive efficiencies that could be worth to the tone of at least Rs 100 per tonne in the form of cost improvements. This, in turn, could boost margins in an otherwise competitive market.
"Synergies will drive operational efficiencies. Should be viewed favorably by shareholders," the note stated.
Ambuja Cements shares are currently trading at a relative strength index of 25, which suggests the stock is in an oversold territory.
Out of 46 analysts tracking the company, 35 maintain a 'buy' rating, eight recommend a 'hold,' and three suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target of Rs 659.21 implies an upside of 17.5%.
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