ACC- Now becomes a step-down sub; neutral to slightly positive if creeping acquisition materializes :: JPMorgan

We view the proposed ACC-Ambuja transaction as broadly neutral to
positive for ACC. In the event the creeping acquisition materializes, ACC
is likely to find support and possibly move higher in the near term.

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We view the proposed ACC-Ambuja transaction as broadly neutral to
positive for ACC. In the event the creeping acquisition materializes, ACC
is likely to find support and possibly move higher in the near term.
 Neutral to slightly positive for ACC. We believe that the ACCAmbuja transaction is neutral to slightly positive for ACC. Although the
status quo is maintained at ACC (cash/shares issued by Ambuja to
Holcim to buy a 50.01% ACC stake), management highlighted that it
expects to derive synergies through supply chain optimization as well as
the sharing of services and fixed costs. Management indicated that
enhanced efficiency of supply chain across clinker and cement plants of
ACC-Ambuja could drive Rs360MM-Rs420MM in cost savings. Further
sharing of services (procurement, Finance, Marketing, HR functions)
could result in another Rs420MM-Rs480MM of annual savings. Overall,
management expects annual synergies to the tune of Rs780MMRs900MM to be realized in a phased manner over two years.
 Creeping acquisition could provide near-term support. Ambuja has
indicated that it is looking at a further stake of 10% in ACC over the
next 24 months following the completion of this transaction. It has
received an in-principle board approval for amount of Rs30B for the
additional stake. Effectively, this creates a floor price higher than the
current market cap (Rs231B), which should support the stock over the
near term.
 Risks arising after the transaction. We believe that following this
transaction there will be questions about whether the growth
opportunities for ACC would be restricted with parent (Ambuja) vying
for growth in similar markets. With most cash now on ACC’s balance
sheet, utilization of cash for Ambuja’s growth is a key risk arising out of
this transaction, in our view.