In a flash note on the proposed Ambuja Cements merger, foreign brokerage Investec said it finds comfort in the Ambuja management reaffirming its growth goals, cost and synergy targets and on-going initiatives to achieve the same.
Factoring the growth pipeline, lease expires, promoter’s economic interest in Ambuja Cements, Investec said it prefers Ambuja Cements over ACC, another Adani group stock. It highlighted consolidation, sustainability, ESG as key themes for the sector and find Ambuja Cements best placed to reap the gains. The brokerage suggested a target price that suggests 65 per cent upside potential on the Adani group stock.
The Ambuja Cements board has proposed separate schemes for amalgamation of Sanghi Industries limited (SIL) and Penna Cement with Ambuja Cements, subject to approvals from related stakeholders and authorities. It is anticipated that the merger process will be completed within 9-12 months. Shareholder equity dilution would stand at 0.88 per cent, it said.
In the case of Sanghi Industries, Ambuja Cements will issue 12 shares of face value (FV) Rs 2 each for every 100 shares of Sanghi Industries of FV Rs 10 per share. "This transaction will lead to Ambuja Cements issuing 1.3 crore share to Sanghi Industries shareholders, this will dilute ACEM promoters’ stake by 0.35 per cent," it said.
In the case of Penna Cement, Ambuja Cements entered into a binding agreement to acquire 100 per cent stake in Penna at EV of Rs 10,420 crore, paid in cash. Now Ambuja Cements has proposed to amalgamate it self.
For Adani Cementation, Ambuja Cements would issue 174 shares for every 1 share of Adani Cementation, subject to necessary statutory and regulatory approvals under the applicable laws, including NCLT.
"This transaction will lead to ACEM issuing 87 lakh shares to Adani Cementation shareholders, this will dilute ACEM promoters’ stake by another 0.24 per cent," it said.
Investec noted that the move will streamline organisational structure, simplify compliance requirements and do-away with RPT’s.
"We understand aforesaid transaction will require majority of minority approvals and await clarity on potential tax benefits with respect to carryforward accumulated losses and unabsorbed depreciation," Investec said.
The brokerage suggested a target price of Rs 950 on Ambuja Cements. On Wednesday, the stock was trading 0.39 per cent lower at Rs 568.75. Sanghi Industries fell 10.13 per cent to Rs 69.13.