ACC: Immediate re-rating is unlikely for ACC, Ambuja Cements

MUMBAI: Shares of ACC and Ambuja Cement rose 8% and 5%, respectively, on Monday, as the acquisition of both Adani Group companies was at 7-9% premium from Friday’s closing price. Analysts, however, say they do not expect any immediate re-rating of stocks after the acquisition.

“Holcim was less aggressive in power growth, and with the change of motivator, it could change attitudes.

And in the medium to long term, Ambuja, and investors can get a good cement stock to invest in any of these, “said Capital analyst Vishal Periwal.

On Sunday, Adani Group entered into a specific agreement to acquire a stake in Holcim, the head of Swiss Cement.

And the ACC. According to a stock exchange filing, the group has announced an open offer to buy up to 26% of the shares at ₹ 385 for Ambuja Cement and A 2,300 for ACC.



Shares of Ambuja Cement rose 2.6% to ₹ 368 on Monday, while ACC shares closed at ₹ 2,192, up 3.7% from their previous close. Over the past 10 years, both ACC and Ambuja have underperformed the Ultratech and Benchmark Nifty of Sector Leader Aditya Birla Group. ACC and Ambuja shares have risen 88% and 156% in 10 years, respectively, compared to a 339% rise in the price of Ultratech shares or a 221% rise in the Nifty index. The ACC’s one-year forward price-to-earnings (PE) ratio is traded at 24 times the discount of 28 times that of UltraTech.

“In the short term, cement companies will face margin pressures due to the sharp rise in input costs, but with the change in management, the long-term outlook for both ACC and Ambuja Cement has improved,” said Shaikh Khan, head of Capital – Gaurab Dua Market Strategy. Adani Group, which is known for its aggressive expansion, could change the dynamics of these two companies by taking advantage of its logistics and power generation business.

The acquisition will make Adani Group the second largest cement player in the country with an annual capacity of 70 million tons. According to analysts, the combined capacity of ACC and Ambuja costs $ 159 per tonne, which is more than the cost of replacement.

Gautam Duggad, head of research, said: “Acquisitions will not immediately follow the growth capx if it is a leveraged buy-out.” “In the long run, however, the dynamics of the sector will depend on the growth plan and the acquisition aggression.”

Many analysts say Adani Group should focus on further cost optimization as there is little chance of gaining market share through volume push.

Capacity utilization for ACC-Ambuja is already over 80%, leaving little room for aggressive volume push, and the general cost pressures and possibly acquisitions could ensure better financial discipline by the buyer, “says Devesh Agarwal, analyst.

. “But any concerns about potential offensive capability-addition plans could weigh on sector valuations.”