Cement Maker Holcim Likely To Exit India Market, To Put Up For Sale Its Indian Arms Ambuja, ACC
The largest cement maker in the world, the Holcim Group, is likely to exit the Indian market as well as put up its publicly listed Indian subsidiaries Ambuja Cement and ACC Ltd for sale, said reports quoting sources with knowledge of the matter. This decision of the company is a part of its global strategy to focus on its core markets.
JSW and Adani Group, among others, are thought to have undertaken early-stage talks with Holcim to gauge their interest levels. Both are newcomers to the cement industry, but they have big intentions to grow.
Feelers have also been sent to regional cement companies including Shree Cement, according to sources in the know.
Global cement companies that have been eyeing India for some time are expected to be approached, as acquiring both Ambuja and ACC will propel any player to second place in the highly competitive, fragmented, and price-sensitive market, with a combined pan-India capacity of 66 million tonnes per annum.
UltraTech, part of the Aditya Birla Group, is India’s largest cement business, with a capacity of 117 MTPA.
Holcim, which combined with French rival Lafarge in 2015 to form LafargeHolcim, a European cement, and building materials behemoth, was compelled to undergo various restructurings to comply with anti-trust regulators around the world, including divesting holdings in Europe and Asia, including India. Since then, the united company has been renamed Holcim Group.
Holcim’s flagship company in India is Ambuja Cement, which it controls 63.1 percent of as promoters through Holderind Investments Limited. ACC Ltd is owned by Ambuja Cement, which owns 50.05 percent of the company. Another 4.48 percent of ACC is owned directly by Holderind Investment (Holcim). Holcim has been attempting to streamline operations by integrating the two operations for maximum cost and operational efficiencies since 2018, although the process is still ongoing.
The combined market capitalization of the two firms is Rs 1.14 lakh crore ($15 billion) as of Wednesday, with Ambuja alone valued at Rs 73,349 crore ($9.7 billion), making it undoubtedly one of India’s greatest prospective mergers and acquisitions. Any prospective merger will also result in an open offer in both for a 26 percent stake in the company.
Ambuja’s stock has surged 16% since April 6, potentially in expectation of a large transaction, while ACC’s stock has grown 2% in the same time period. Ambuja shares closed at Rs 369.40/share on Wednesday, up 2.6%, while ACC closed at Rs 2207.15/share, up 1.16%.
“We do not comment on rumors”, Holcim’s head of media relations in its headquarters in Zug, Switzerland, told the news agency Reuters.
There were no comments on the issue from JSW, Adani, and Shree Cement.
Discussions between Holcim’s senior management and their counterparts at JSW and Adani have been ongoing in India and Europe for several weeks and have gained traction in recent days. Prospective suitors have approached global institutions to organize at least $5-7 billion in potential finance.
These conversations, however, are still preliminary, according to the sources, and may or may not lead to a transaction. The precise deal parameters and valuation have still to be determined.
Officials in the know say that because Holcim has a substantial stake in flagship Ambuja and just a minor portion of ACC directly, a possible buyer can only buy out Holcim’s 63% in the former before triggering an open offer for the remaining 26% in Ambuja Cement. A new owner may wind up owning 89% if fully subscribed. At today’s market price, this transaction might be worth Rs 65,280 crore ($8.7 billion).
After obtaining a 4.48% stake from Holcim, the suitor may only launch a 26% open offer for ACC, with the remaining 50% controlled by Ambuja Cement. At present pricing, that would be an additional Rs 12,434 crore ($1.65 billion).
Ambuja and ACC’s total market share in India spans from 10% in the center to 26% in the north, which is their largest market. Both are undertaking expansion plans that will increase their combined capacity to 80 mtpa in the next two years. Holcim, on the other hand, has been slow to scale in India, afraid to stretch its global financial sheet, allowing nimble local competitors to seize the opportunity by aggressively expanding organically or through M&As.
Holcim took over the operation of Ambuja Cements in 2006.
It had partnered up with Gujarat Ambuja to obtain a majority share in ACC a year before. Narotam Sekhsaria and his partner Suresh Neotia, the company’s founders and promoters, sold their remaining 0.79 percent ownership to a Holcim affiliate in 2011. Sekhsaria, on the other hand, remains chairman of both the ACC and Ambuja boards.