Ambuja stock lags behind ACC, UltraTech over Holcim deal

Ambuja Cements has lagged behind its peers ACC and UltraTech Cement over the last month, with its stock giving a return of 5% against 15% and 10% returns offered by the two rivals. In comparison, the ET Cement Index rose 10% over the period.

The main reason behind the dwindling investor interest in Ambuja Cements seems to be the perceived notion that minority shareholders stand to gain little from the recently announced Holcim-Ambuja deal.

In the deal, Ambuja Cements bought ACC's stake in Holcim for 3,400 crore and in a share-swap merger, ACC will become an arm of the combined entity of Holcim and Ambuja Cements.

The contours of the deal have not gone down well with industry experts, who say a plain share-swap deal between Ambuja Cements and ACC would have saved cash on the books of Ambuja Cements, serving the interest of minority shareholders.

Another factor that has resulted in a tepid investor interest in the stock of Ambuja Cements is its geographical presence. In the quarter to September, average cement prices in the southern and central regions increased in the range of 3-5%, while in the western, eastern and northern regions they fell 5-10% on a year-on-year basis.

Among the three players, ACC and UltraTech have a reasonably good presence in the southern and central regions, justifying sustained investor interest in these stocks. Ambuja Cements, on the other hand, has strong presence in the western, northern and eastern regions, where demand growth is poor and construction activity is limited because of various governmental delays and unviable market conditions.

Even the valuation of Ambuja Cements is not justified when compared with its peers, which have better geographical presence.

The stock of Ambuja Cements is trading at an EV/ tonne of $150, while UltraTech Cement and ACC are trading at $160 and $100.

This is also reflected in the analysts' poll conducted by Bloomberg, according to which 20% of the analysts polled gave a 'Buy' recommendation on Ambuja Cements, while 44% and 47% gave a 'Buy' recommendation on the stocks of UltraTech Cement and ACC.