With the acquisition process largely behind, global brokerage Jefferies believes the group's (and investor) focus should now shift to cement business strategy going forward, pace of turnaround on efficiencies and growth outlook. The brokerage has Buy rating on ACC whereas Hold rating on Ambuja Cements shares.
In May this year, Adani Group announced the acquisition of Holcim's stake in Ambuja (63.19%) and stake in ACC (4.48%; Ambuja directly owns ~50% stake in ACC). “The acquisition triggered a 26% open offer in both stocks, as well. Deal value including c.US$4bn worth of open offer was pegged at $10.5 bn, implying a rich valuation (EV/T) of $160-170/T," the note stated.
With the acquisition largely complete, focus shifts to the group's strategy ahead. In the recently concluded Jefferies Asia Forum, Adani Group's CFO highlighted that the group is looking to close the ACC-Ambuja transaction within the next 10-day period and will be focusing on group efficiencies thereon.
"We believe the Street now keenly awaits the blueprint on how the group is looking to drive synergies in the cement business and outlook on the expansion. Post the acquisition, the chairman of Adani Group in an interview with Fortune India, said that the group is planning to expand to 100MTPA/130MTPA in the next 3-4 years/5-6 years vs 67MTPA currently," it said.
While Jefferies is enthused by new promoters taking over, the outlook on the pace of execution of the Adani Group's strategy is a key issue to monitor. Adani's buyout of Ambuja Cements/ACC comes with some low-hanging fruit for Adani on cost-saving opportunities, better procurement, logistics and brownfield expansions — which could drive earnings growth faster than peers for these companies, Jefferies added.
Ambuja Cements and ACC currently have a combined installed production capacity of 70 million tonnes per annum. The two companies together have 23 cement plants, 14 grinding stations, 80 ready-mix concrete plants and over 50,000 channel partners across India.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
