The Holcim Group, the world’s largest cement maker, may exit India, seventeen years after it entered the country, putting its twin listed arms Ambuja Cement and ACC Ltd up for sale, as part of a global strategy to focus on core markets, said multiple people aware of the decision.
Holcim is believed to have held early-stage negotiations with JSW and Adani Group, among others, to explore their interest levels. Both are recent entrants in the cement sector but have aggressive plans to ramp up.
Sources in the know said feelers have also been sent to regional cement operators like Shree Cement. Global cement companies who have circled around India for long are also expected to be tapped, since 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.
Aditya Birla Group’s UltraTech is the largest cement company in India with a capacity of 117 MTPA.
Switzerland-based Holcim that globally merged with French rival Lafarge in 2015 to create a mega entity LafargeHolcim – a European cement and buildings material giant — was forced to go through several restructurings to comply with anti-trust regulators around the world, by divesting assets across Europe and Asia, including India. The combined entity has since been rebranded as Holcim Group.
Holcim’s flagship entity in India is Ambuja Cement where, as promoters, it owns 63.1% via Holderind Investments Limited. Ambuja Cement in turn owns 50.05% of ACC Ltd. Holderind Investment (Holcim) owns another 4.48% in ACC directly. Since 2018, Holcim has tried to streamline operations by merging the two operations for maximum cost and operational efficiencies, but that process is still incomplete.
As on Wednesday, the combined market capitalisation of the two companies is Rs 1.14 lakh crore ($15 billion) with Ambuja alone being at Rs 73,349 crore ($9.7 billion), making it arguably one of the largest potential M&As in India. Any potential transaction will also trigger an open offer in both for an acquisition of an addition 26%.
Shares of Ambuja has risen 16% since April 6, possibly in anticipation of a mega deal, while ACC gained 2% in the same period. On Wednesday, Ambuja shares closed at Rs 369.40/share, up 2.6% and ACC at Rs 2207.15 /share, up 1.16%. Holcim’s head of media relations in its headquarters Zug, Switzerland, said “we do not comment on rumours”.
JSW declined to comment. Adani did not respond till press time.
Calls and messages to HM Bangur, MD, Shree Cement did not generate a response either.
Discussions among the senior leadership of Holcim and their peers at JSW and Adani have been ongoing for several weeks in India and Europe and have gathered momentum in recent days. Global institutions have been approached by the potential suitors to organise at least $5-7 billion of potential funding.
However, the sources cautioned these discussions are still preliminary and may or may not lead to a transaction. The final deal contours and valuation are yet to have been finalised.
According to officials in the know, since Holcim on its own has a large shareholding in flagship Ambuja and owns only a small fraction directly in ACC, a potential buyer can only buy out Holcim’s 63% in the former and then trigger an open offer for an additional 26% in Ambuja Cement. If fully subscribed to, a new owner can end up owning 89% of the company. This in itself could be a Rs 65,280 crore ($8.7 billion) transaction at today’s market price.
For ACC, the suitor may just launch a 26% open offer after acquiring a 4.48% from Holcim as the remaining 50% is held via Ambuja Cement. That would be an additional Rs 12,434 crore ($1.65 billion), at current prices.
“ACC is a subsidiary of Ambuja. Holcim largely owns shares directly in Ambuja and only a sliver in ACC. The market capitalisation of Ambuja captures the underlying value locked up in ACC Ltd. By taking control of the top co (India parent: Ambuja), one can control the underlying subsidiary, ACC.
“Consolidation of Holcim’s interest into a single entity would enable better planning for incremental capacity additions, particularly brownfield, leveraging group-level resources, optimised logistics for raw materials, clinker, and cement; better use of cash, enhancing liquidity and conveying the message of a progressive, strategic-thinking organisation,” said Lokesh Garg, analyst at Credit Suisse recently.
Cement analysts said Holcim has identified specialty building solutions and high-end energy efficient renovations as a key focus in the near future, as part of a global re-evaluation of its sprawling portfolio, which will lead to divestitures of legacy operations. This is part of its strategic 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 declining compared to ready mix concrete, aggregates, roofing and green building solutions.
“We will reach 30% of group net sales in Solutions & Products…” the company had stated last November while announcing its new vision. “This business will expand its range of integrated solutions and systems from construction and energy efficiency to repair and refurbishment.” The recent acquisitions of Malaracky Roofing Products, PRB Group in France, PTB-Compaktuna (PTB), a leading specialty building solutions producer based in Belgium, are all a part of this shift, as has been the $3.4 billion buyout of Firestone Building Products, a global leader in roofing systems in January 2021.
It has also exited it’s Brazilian unit and followed it by selling North Ireland cement operations earlier this year. It plans to move out of Zimbabwe as well.
In India, Ambuja and ACC’s combined market share ranges from 10% in central to 26% in north, their biggest market. Both are currently undergoing expansion plans to ramp up cumulative capacity to 80 mtpa in the next two years. Holcim, however, has been slow to scale in India, unwilling to stretch its global balance sheet, an opportunity that nimble local rivals capitalised on by aggressively expanding, either organically or through M&As.
In 2006, Holcim acquired management control of Ambuja Cements.
A year earlier, it had teamed up with Gujarat Ambuja to buy a majority stake in ACC. In 2011, the founder-promoters of Ambuja Cements — Narotam Sekhsaria and his partner Suresh Neotia — exited the company by selling their residual 0.79% stake to a unit of Holcim. Sekhsaria, however, continues to be the chairman of both ACC and Ambuja board.