Here's why Holcim is a strategic fit for Adani

From a strategic point of view, there is a lot that Holcim can do to make Adani a robust cement player. A high-quality asset with a pan-India presence coupled with two robust brands makes for a good story.

That is only one part of the story where capacity to the extent of 70 million tonnes per annum (70 mtpa) is acquired at a time when raising funds for the Adani group is not a challenge plus there is an existing infrastructure business that not just works well to grow the cement piece but will have a positive impact on the group. To put the numbers in perspective, Holcim’s operations – Ambuja Cement and ACC – will be acquired by Adani for $10.5 billion. It comprises Holcim’s 63.1 per cent stake in Ambuja, which also owns a 50.1 per cent stake in ACC, and a 4.5 per cent direct stake in ACC. The outgo also takes into account the mandatory open offer to the existing shareholders of both the publicly listed companies assuming it goes through in full.

Holcim gets Rs 385 for each share of Ambuja and Rs 2,300 in the case of ACC, which is a 8-9 premium to the current market price.

“After a successful open offer, Adani’s stake in Ambuja will increase to 89 per cent and 81 per cent in ACC. It would have to be seen if Adani Group reduces its stakes to 75 per cent or delists the companies,” says a report from Emkay Global. In terms of valuation, enterprise value (EV) per tonne is a metric used in the cement industry. For Ambuja, it is $198, while it is $117 for ACC.

According to Deven Choksey, MD, K R Choksey Securities, Adani’s play in infrastructure gives it the advantage of transport. “Be it roads, water or railways, they are strongly placed and can control transport costs,” he says. With the group’s coal business in Australia, it can easily export it to India. That can be used for the power business, which throws up fly ash, a raw material for the manufacture of cement. “Ambuja uses rice husk as an alternative power already. Adani can enhance that process and move it across both Ambuja and ACC.”

To him, with a significant scale of operation, it is possible to look at a multitude of ways to cut back on costs and increase efficiency levels.