The Holcim Group, the world’s largest cement maker, may exit India as part of a global strategy to focus on core markets and shift towards a greener future, reports suggest. The group entered the market 17 years ago and the exit will put its listed arms, Ambuja Cement and ACC Ltd, up for sale.
Holderind Investments Ltd (Holcim), a Switzerland-based building materials conglomerate, is exploring a stake sale in Ambuja Cements Ltd. Holcim holds 63.19 percent stake in Ambuja and 4.48 percent stake in ACC Ltd. Ambuja also has 50.05 percent stake in ACC. If such a deal goes through, there would be repercussions not only for these two but other companies as well.
Why is Holcim leaving India?
As per media reports and analysts, Holcim has identified specialty building solutions and high-end energy-efficient renovations as a key focus for the future. This will lead to divestitures of its legacy operations across the globe. It is under the group’s ‘Strategy 2025, Accelerating Green Growth’ programme, that aims for sustainable solutions for the building materials sector. The significance of cement in the overall group is already declining compared to ready mix concrete, aggregates, roofing, and green building solutions.
"We will reach 30 percent of group net sales in solutions and products…" the company had said last November while announcing its new vision.
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Meanwhile, the company bought Malarkey Roofing Products in December 2021, and Firestone Building Products in early 2021.
The group exited Brazil and sold its North Ireland cement operations earlier this year. It has plans to move out of Zimbabwe as well.
They have also divested from the cement business in Sri Lanka, Indonesia, Vietnam, Malaysia, Philippines, and Russia in the past few years. India remains the only emerging market that is left.
"We will not be surprised as it appears that Holcim, under its CEO -- Jan Jenisch, may gradually pivot towards building solutions business and away from traditional cement production," Kotak Institutional Equities said in their report as per The Economic Times.
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What does this mean for the cement industry?
Taking over both Ambuja and ACC will catapult any player to the second position, with a combined pan-India capacity of 66 million tonnes per annum in the highly competitive, fragmented, and price-sensitive market.
Currently, Aditya Birla Group’s UltraTech is the largest cement company in India, with a capacity of 117 MTPA.
Navin R. Sahadeo, Research Analyst, Edelweiss, told CNBC-TV18: “Ultratech trades at roughly $210 EV per tonne. Ambuja, the standalone entity, trades at $200 EV/tonne. ACC trades much lesser. So, the news (reports suggest that the world's largest cement maker, Holcim has put Ambjua Cement and ACC, its two listed companies in India up for sale and may exit the country), if at all, it happens at a premium valuation will be sentimentally positive for the entire sector and not just for Ultratech because there are names of several domestic groups, which are being surfaced in the media as potential suitors. So overall, I think it's going to have a positive number for the entire cement segment.”
A stake sale in Ambuja could trigger an open offer in both ACC and Ambuja Cement. The potential deal size could be around $10-12 billion, according to the Kotak Institutional Equities report.
“Under a new management, Ambuja and ACC will become far more aggressive and that is slightly negative for the incumbent leaders like UltraTech and Shree Cement, who have begun to grow very fast,” Rakesh Arora, Founder, Go India Stocks.com said in an Economic Times report.
"In our view, any new deep-pocketed player’s entry via a potential buy-out of Holcim’s stake in Ambuja Cement (and indirectly ACC) would be negative for the Indian cement industry as capacity expansion could accelerate (historically ACC and Ambuja have been slow in cap add). We prefer ACC over Ambuja," said JP Morgan in its recent report as reported by Moneycontrol.
Who are the potential buyers?
Till now, two major names, the Adani group and JSW Cement, have emerged as the frontrunners and discussions with the senior leadership of Holcim have been going on for several weeks in India and Europe. Shree Cement is also a possible contender. Reports suggest that global institutions have been approached by the potential suitors to raise $5-7 billion funding.
However, the sources have cautioned that these discussions are still preliminary and may or may not lead to a transaction, as per the ET report.
Holcim has a large shareholding in Ambuja and owns only a small fraction directly in ACC. Therefore, a potential buyer can only buy out Holcim’s 63 percent stake in Ambuja and then trigger an open offer for an additional 26 percent in Ambuja Cement. In case it is fully subscribed to, a new owner can end up owning 89 percent of the company. This could be a Rs 65,280-crore ($8.7 billion) transaction at today’s market price.
Further for ACC, the suitor may just launch a 26 percent open offer after acquiring 4.48 percent from Holcim as the remaining 50 percent is held via Ambuja Cement. This would be an additional Rs 12,434 crore ($1.65 billion).