Holcim erased value for Ambuja minority shareholders: CLSA

CLSA strongly believes that the entire restructuring of cement major Holcim will destroy value for Ambuja minority shareholders. The CLSA note published after the deal was announced argues that the holding-company structure will result in a potentially large holding company discount which will be applied to Ambuja’s stake in ACC. It notes a 28% equity dilution for Ambuja minority shareholders.

The brokerage has downgraded Ambuja Cements to `sell' from its previous rating of `buy' and has revised the stock's target price to Rs175/share (-10%).

The Swiss cement major had yesterday announced its plans to restructure its operations in India. The move is aimed at simplifying the ownership structure of its two Indian subsidiaries - Ambuja Cements and ACC. Holcim currently owns its stake directly and through a 100 percent subsidiary known as Holcim India Private Limited (HIPL).

As per the deal, Holcim will raise its stake in Ambuja Cements to 61 percent which in turn will pick Holcim's entire stake (50.01 percent) in ACC. Ambuja also plans to buy another 10 percent in ACC over two years through creeping acquisition at a maximum outlay of Rs30bn. CLSA believes it will help the ACC stock.

UltraTech, Shree Cements and Grasim are the better ways to play the long term cement growth story, CLSA said at the end of the note.