Adani Group-Holcim $10 bn mega deal: Key takeaways & analysts’ take

The offer share price for Ambuja Cements is Rs 385 and for ACC Rs 2,300, implying an 8-9 per cent premium over current price, totaling Rs 50,200 crore ($6.5 billion). The transaction will trigger an open offer in both Ambuja and ACC and the total deal size would increase to Rs 81,400 crore or $10.5 billion at a 100 per cent acceptance ratio.

“After a successful open offer, Adani’s stake in Ambuja will increase to 89 per cent and 81 per cent in ACC. It would have to be seen if Adani Group reduces its stakes to 75 per cent or delists the companies. The transaction is subject to regulatory approvals and is expected to close by H2CY22,”

said in a note.



The acquisition would make Adani Group India’s second-largest cement company in India with a capacity of 68 million tonnes.

With that, said Emkay Global, Ambuja Cements is valued at 14.4 times FY24 EV/Ebitda and $198 EV/tonne and ACC at 10.2 times FY24 EV/Ebitda and $117 EV/tonnes.

On a trailing 12-month EV/Ebitda basis, the combined entity’s valuation stands at an EV/Ebitda of 14.6 times against

‘s 15.9 times and ‘s 19 times.

“In the last decade, Holcim India has lost capacity and volume market share, a leeway which is unlikely to continue with Adani. We expect Adani to capitalize on various low cost brown-field expansion opportunities and move faster towards 100 mtpa capacity. Further, Adani could also look more actively for further inorganic opportunities which would help in consolidation. However, given the high acquisition cost and likely leverage for the funding, we do not expect Adani to break the market discipline for quick market share gains,” said Kotak Institutional Equities.

Phillip Capital said it has kept estimates unchanged for now. “But, we upgrade target multiples for ACC from 13 times to 15 times and for Ambuja Cements from 16 times to 18 times. We revise PO to Rs2,850 for ACC against Rs2,550 earlier and upgrade Ambuja Cements to Buy with target of Rs 440 against Rs 410 earlier,” it said in a note.

Edelweiss said the deal leaves little for minority holders. At the current market price, the deal leaves just 7.5 per cent upside for Ambuja Cements and just over 9 per cent for ACC, which is disappointing.

Minority shareholders, it said, will be keen to know how the deal will be treated eventually (post the mandatory open offer) given possibilities like Ambuja Cements to get delisted or it remains listed and does not assume the deal’s debt burden.

“Minorities will appreciate Adani’s announcement to double capacity within five years and will also expect more efficiencies, it said, while adding that Adani may also look to merge Ambuja Cements and get the debt housed in the entity where the asset is.

Here are key takeaways on the deal by PhillipCapital:

Quality of consolidation
PhillipCapital said other large industry players like

, , Shree Cement, JSW Cement, were already being under direct promoter control. The cement industry, it said, now appears to be a promoter control (identifiable) driven industry; more importantly NextGen promoters!

“Even at Adani Cement, based on our expectations, we don’t rule out intense participation of Mr. Gautam Adani’s sons taking charge of day-to-day operations of the cement business, as far as promoter role in the business is concerned. We see huge improvements possible at ACC and Ambuja Cements, as they now truly become direct-promoter driven entities, most importantly, individual promoters,” it said.

“In our view industry is all set to now regain its lost ‘natural’ pricing power or let us say, industry is set to establish better control on its ‘sustainable earnings’ quotient,” the brokerage said.

Beyond a merger
Having acquired some of the jewels of the Indian cement industry, it is obvious that Adani would be very excited about their new venture, PhillipCapital said.

“The new venture will definitely be helpful as it will help Adanis rationalise a lot of fixed cost quotients at both these entities. Most importantly, it would be their gutsy call to go for a brand consolidation at some stage, if they decide to do so! It is to be remembered that Ambuja Cements and ACC have been talking constantly about squeezing efficiencies through various synergies but, as we read, these are mainly production-related synergies,” the brokerage said.

PhillipCapital said that the two brands can be merged into a single brand. When this happens, the cost optimization through supply-chain improvements can be unimaginable, it said. Only 40 per cent of the gross revenues to cement industry attribute to production cost and rest is all a part of the supply-chain equation.

It recalled that when Aditya Birla Group decided their aggressive foray in the cement business, UltraTech brand did not even exist then. It will only be fair to expect Adani to have great synergies of their cement business with many of their other businesses such as realty, infrastructure, renewable power, ports, logistics etc, PhillipCapital said.

Rational move

The brokerage said Adani are mainly either utility or service-oriented. This is their first large scale foray into the hard-core manufacturing sector.

The operating business dynamics in the manufacturing sector are very different from what it is in the services or utilities space, the brokerage noted.

“Manufacturing business, especially like that of cement, requires quick working capital rotations and large working capital deployments for its long-term success. Any aggression here with any irrational behaviour will mean imbalances in working capital cycles and which may not be something that Adani would want from their cement business,” it said.

The deal is expected to be quite a leveraged deal too for Adani and hence it will only be sensible for them to showcase great rationality and least aggression, the brokerage noted.

Industry reaction

While the industry remains a little worried or confused with Adani entering the cement business, at the same time, it is optimistic of them behaving well as they have deployed a great amount of capital to acquire, PhillipCapital said.

“We expect the biggies like UltraTech Cement to probably fast-track their future expansion plans, as they may fear losing their industry positioning or it to be at a risk in the long-term, if Adani acquires some more sizable capacities. Any aggressive expansion plans by players who have relatively weaker balance sheet strengths may put them at reasonable risk too, in case of any adversities in the operating business environment for the sector,” PhillipCapital said.

“Hence such players will probably revisit their thoughts and rethink their expansion plans, if any, in our view,” it said.

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