Media reports (source: www. cnbctv18.com) indicating the ACC-Ambuja merger have resurfaced. We believe this was speculated earlier as well and thus it is not entirely new or unsubstantiated. This is enabled by recent MMDR amendments which remove transfer charges in the transfer of mining leases, as in the case of M&A transactions. ACC and Ambuja already have an MSA in place to explore synergies in distribution and procurement costs. Both companies have capacity expansion plans to add 11.8 mtpa apart from recent additions, e.g. at Mundwa.

Consolidation of Holcim’s interest into a single entity would enable better planning for: (1) incremental capacity additions, particularly brownfield, leveraging group-level resources; (2) optimised logistics for raw materials, clinker, and cement; (3) better use of cash, particularly at ACC; (4) enhancing liquidity and float in Ambuja; and (5) conveying the message of a progressive, strategic-thinking organisation.

Stay Outperform on Ambuja (TP Rs 410) on strong long-term demand outlook, pricing discipline, with commodities pullback driving profitability and attractive valuations.

Current expansion plans to add 11.8mtpa across ACC and Ambuja: Both ACC and Ambuja have growth pipelines across regions, taking their combined share of the East in the portfolio to 34% (26mtpa) from 26% (17mtpa) currently. Ambuja’s board has approved an investment of `35 bn for 7.0mtpa expansion across existing grinding units at Sankrail and Farakka, a greenfield grinding unit at Barh, Bihar, and a 3.2mtpa brownfield clinker expansion at the integrated plant in Bhatapara, Chhattisgarh.

ACC has ongoing expansion projects at: (1) Tikaria, Uttar Pradesh (brownfield, cement 1.6mtpa, to be completed in 1Q22); (2) Ametha Integrated Project, Madhya Pradesh (greenfield, clinker 2.7mtpa and cement 1.0mtpa, to be completed in 2Q22); and (3) Salai Banwa Grinding Unit (greenfield, cement 2.2mtpa).

Holcim’s holdings consolidation into a single entity for better planning: The consolidation of Holcim’s interest into a single entity would enable better planning for: (1) incremental capacity additions, including in ACC such as brownfield developments, and limestone reserves; (2) optimised transport and dispatch of raw materials, clinker, and cement; (3) better use of cash at ACC; (4) enhancing liquidity and float in Ambuja; and (5) conveying the message of a progressive, strategic-thinking organisation vs that of a staid, no-growth company of the past several years.