Why are top Indian companies vying for Holcim's India assets Ambuja and ACC

It has all the elements to hook you in. An intense bidding battle for Ambuja Cements and ACC -- the two Indian subsidiaries of Switzerland’s Holcim Group -- is going on.

And it all began with baffling media reports that Holcim -- the world’s biggest cement maker – may exit India -- a country which makes up 23 per cent of its global cement capacity.

Holcim’s decision to potentially quit India – which still has millions of kutcha and semi-pucca houses and will see massive construction activities in the years to come – has surprised many. It entered the Indian cement sector in 2005. The Swiss giant is now trying to diversify away from its core business of cement and aggregates like crushed stone, gravel and sand to focus more on building technology as it increases its emphasis on sustainability.

From the current 13%, Holcim is targeting to generate 30% of its net sales by 2025 from the Solutions & Products segment, which covers businesses ranging from roofing and waterproofing to insulation and renovation.
 

This is part of its medium-term strategy to become the global leader in innovative and sustainable building solutions called the “Strategy 2025 – Accelerating Green Growth”

It has made several acquisitions in the past 12 months in Europe and the US to build up its Solutions & Products portfolio. At the same time, it has sold off its cement operations in Brazil, Northern Ireland, Zambia, Malawi, Madagascar and Russia.

And according to reports, next in line is India, where Holcim is the second-biggest cement group. The Indian operations represent 24% of Holcim’s global cement capacities and 27% of sales. 

It owns a 63.19% stake in Ambuja Cements and 4.5% directly in ACC. Ambuja in turn holds just over 50% in ACC. They have a combined capacity of 66 tonnes per annum compared to market leader UltraTech Cement’s 120 million tonnes. 

So what makes Ambuja and ACC so attractive that it has triggered a hotly contested race between several players to buy them?   

On a consolidated basis, Ambuja and ACC account for 12% of domestic capacity and 17% of the revenue market share. 

Ambuja Cement and ACC reported a combined net profit of Rs 3,900 crore on revenues of Rs 30,000 crore during the year ended December 2021.

The acquisition of Ambuja and ACC will give the acquirer one of the best managed and profitable cement assets in the country, which are also debt-free.

To give a complete exit to Holcim, the potential buyer would have to shell out as much as $10.5 billion after accounting for mandatory open offers since both are listed entities. This would make it the largest deal in the Indian cement industry and one of the biggest exits of an MNC from India.  

The high potential cost is attracting bidders with deep pockets. 

Media reports indicate that India’s biggest steelmaker JSW Group, Aditya Birla Group’s UltraTech Cement and ports-to-energy conglomerate Adani Group have submitted non-binding bids to Holcim. 83-year-old cement maker Dalmia Bharat and the world’s biggest steelmaker ArcelorMittal are also said to be joining the race.

Speaking to Business Standard, Manish Valecha, Lead Cement & Construction Analyst, Anand Rathi Securities says, ACC-Ambuja have plans to add another 5-8 mtpa capacity in 1-1.5 years. Any new player will directly go to number 2 position, he says. Setting up a new cement plant or adding capacity today is difficult and it takes up to 5 years to set up a 4-5 mtpa plant, he says. So, getting 66 mtpa at one go is a huge opportunity.

UltraTech Cement will face antitrust hurdles with respect to its post-purchase market share in some western states including Maharashtra and Gujarat. Even so, it can offer to voluntarily divest some of its assets in those particular geographies to secure approvals from the Competition Commission of India.

The deal may also face some hurdles from CCI on a different front too. The regulator has been keeping a tab on the cement companies for cartel formation. In 2010 it had slapped Rs 6,000 crores as fine on ten cement companies over this.

While a potential deal can cement UltraTech’s position as the market leader, it will propel any other buyer to the second-largest player.  Ambuja and ACC are particularly attractive for non-cement groups like Adani and ArcelorMittal, who will get the opportunity to gain a huge foothold in the world’s second-biggest cement producing country.