As Holcim sells off its cement holdings in India for Ambuja Cement and ACC, speculations are rife about who will bag these two giants and gain an upper hand in the industry.

One of the world’s biggest cement manufacturers, Switzerland-based Holcim is exiting its India operations and is selling its stakes of Ambuja Cement and ACC. In 2004, the Holcim
Group entered India through their buyout; now, the assets are on the block, after almost two
decades. These twin brands are second in market leadership with a combined capacity of 66 million tonne, second to UltraTech Cement of the Birla Group with a capacity of 120 million tonne.
Holcim Ltd. holds a 63.19 per cent stake in Ambuja Cement and a 4.48 per cent stake in ACC
Cement, where Ambuja Cement holds 50.05 per cent stake in ACC. With India’s infrastructure story gaining momentum, it is a hugely strategic asset for any buyer.
The frontrunners are big business groups such as AV Birla, JSW Group, Adani Group and more
recently, Radhakishan Damani, the billionaire investor and promoter of Avenue Supermarts. The ticket size for this deal with the combined market capitalisation of ACC and Ambuja will be in excess of Rs 1.2 lakh crore and a potential deal being upwards of $10 billion (over Rs 76,000 crore).

The acquisition game
Setting up a new plant post completion of all its formalities of land, norms etc., takes upto three years.

Its location in proximity to the mines as well as to the market is of paramount importance. Therefore, expanding inorganically can be highly value-accretive, especially for a new player like Adani. It will also lead them to owning the place of the second largest cement manufacturer in the country.

“To shed a positive light on the situation of the Holcim Group India exit, it presents an opportunity for the next owner of the brands to take Ambuja Cement and ACC to newer heights in the market.

Their growth as compared to the industry growth has been slower, while other players like Dalmia Cement, Shree Cement and many others have capitalised on the opportunities that have presented in the market,” says Anil Singhvi, Chairman, Ican Investments Advisors.

“If an Indian player gains the majority stake in this transfer of ownership, it will be an advantage to the brands as the new owners will have a fair understanding of the Indian market and how the brands function. Hopefully, Ambuja Cement and ACC as brands will bring a healthy competition in
the market for the number one spot by perhaps acquiring smaller players in the market and increasing its operations across the country. The future does hold a tremendous growth potential for these cement brands,” he adds.

The bids for the two assets are expected to be upwards of $10 billion. As Motilal Oswal’s recent cement sector update report mentions, “Holcim will prefer a cash deal and not a share swap if it has plans to exit the Indian operations. This acquisition will require a huge investment by the acquirer and will make the complete exit a tall task.” The report adds that the acquirer will have to give an open offer in both the companies. The huge investments may lead to leveraging of the acquirer’s balance sheet, which generally is not favoured for a cyclical business.

The report further states, “Acquisition by the Adani group, if it happens, may also alleviate concerns of an entry of a new aggressive player in the sector as the group’s immediate focus will be on streamlining the operations in the near term. In the long run, however, sector dynamics would depend on the growth plans and aggressiveness of the acquirer.”
“If Ambuja Cement and ACC are owned by an Indian player, they are going to have a better future.
Holcim Group operates with many restrictions under the Indian law, however, that will differ when an Indian player comes into the picture; their operations can be more flexible and aggressive, which would ultimately be beneficial for the twin brands,” says Dhimant Mehta, President, Cement Stockists and Dealers Association, and President, DM Group.
“If Adani Group or JSW take over these brands, the way things work and the way business is conducted would change. The Adani Group has inhouse ports and a great Indian distribution system. This will make them handle the cement brands more efficiently, especially in the coastal areas. Holcim India played on its marketing strengths, but, this Indian player has other resources as well that will put them in a strong position to navigate the business as the second
biggest cement manufacturer in India,” he adds.
Ambuja Cement and ACC are pan-India brands with a widespread distribution network and established market presence. Taking on these two companies will put the bidder instantly in a favourable position in the market, but the acquisition itself is a landmine of challenges as competition heats up and the bidding becomes more aggressive.
While the Adani Group is yet to foray into the cement sector, the company is reported to be amongst the leading bidders for Holcim’s local operations.
If Adani is successful in the takeover, the move will take the company from a zero position to a Number 2 position instantly. The two other contenders in the stakeout are JSW Cement, which has a grinding capacity of approximately 15 mtpa, and Shree Cement with a grinding capacity of 46.4 mtpa. If talks succeed for either of the companies, JSW Cement will be propelled from number 8 to number 2 position, which is a considerable jump for the brand, while Shree
Cement will move from number 4 position to the second lead.
That leaves us with the most crucial player in the market – UltraTech. With a consolidated capacity of 119.95 mtpa, Ultratech leads in cement production.
It is highly unlikely that Ultratech would be allowed to bag this prized number two given that Competition Commission of India would be watching over this deal. With complaints of cartelisation already making rounds of courts, this would be definitely a no-no. Not only will the takeover of Ambuja Cement and ACC seal its number 1 position, it will widen the gap between Ultratech and other companies to such an extent, so as to eliminate competition for the cement giant. Further it will also then control prices completely. Hence in all likelihood, this battle remains to be fought between Adani and JSW.