'Overhang removed', say analysts after ACC-Ambuja-Orient Cement merger

Analysts having coverage on Ambuja Cements, ACC and Orient Cement, which announced a merger on Monday, believe that the move will remove a key overhang, and also prove to be value accretive for shareholders of Ambuja Cements.

Ambuja Cements and ACC will be merging as part of the latest move, for which, Ambuja will issue 328 shares of the company for every 100 shares held, while for the Orient-Ambuja merger, 33 shares of Ambuja will be issued for every 100 shares of Orient as of the record date.

You can read more on what this entails for shareholders here.

Brokerage firm Morgan Stanley believes that the street will view this as a positive development as it removes the overhang of managing multiple listed companies under the Ambuja Cement basket, and should be viewed favourably by shareholders.

Morgan Stanley remains "overweight" on Ambuja Cements with a price target of ₹650.

CLSA believes that with ACC trading at a sharp discount to Ambuja, and also meaningfully underperforming the latter for the last few years, this will imply value accretion for Ambuja shareholders.

The transaction though, is subject to multiple approvals, including a majority of the minority shareholders.

CLSA maintained its "outperform" rating on Ambuja with a price target of ₹680, while on ACC, it maintained its "hold' rating with a price target of ₹2,035.

JPMorgan wrote in its note that with this announcement, the stock of ACC should closely track Ambuja and that the Indian Cement industry is likely to see material capacity growth over the next few years.

However, the brokerage sees only a modest pick-up in demand, which could pressure utilisations for most of the players.

Therefore, it remains "neutral" on both ACC and Ambuja.

41 analysts have coverage on ACC, where 21 have a "buy" rating, 12 say "hold" and eight have a "sell" rating.

46 analysts have coverage on Ambuja Cements, where 35 have a "buy" rating, eight say "hold" and three have a "sell" rating.

Shares of Ambuja Cements are off opening highs, currently trading 2% higher at ₹550.5, while those of Orient Cement are trading 6% higher at ₹172.6. Shares of ACC are down 1.1% on Tuesday at ₹1,763.2.