Holcim restructures India operations to cut costs

Written by Reuters | Mumbai | Updated: Jul 25 2013, 16:14pm hrs
Holcim (HOLN.VX) is to raise its stake in Ambuja Cements Ltd (ABUJ.NS) in a restructuring of its operations in the country that the Swiss cement maker said would cut costs.

The reorganisation comes as local cement companies in India are experiencing a drop in demand and pressure on earnings due to a slowdown in home building and infrastructure projects.

Holcim said on Wednesday the deal would increase coordination between Ambuja and another cement maker ACC Ltd (ACC.NS) and was expected to bring cost savings of about $150 million per year, which would be shared by the two Indian companies.

Under the deal, Ambuja will pay 35 billion rupees to buy a 24 percent stake in Holcim India, the Swiss cement maker's local holding company and then Holcim India will be merged into Ambuja through a share swap.

Ambuja will also issue to Holcim 584 million new shares, valued at about 112 billion rupees at current market value. This will increase Holcim's stake in Ambuja to 61.39 percent from just over 50 percent.

Ambuja will in turn acquire Holcim's 50.01 percent stake in ACC. Both Ambuja and ACC will continue to operate as separate entities, Holcim said. "The desire is to extract synergies from both companies, to cooperate more in the logistics area," Onne Van Der Weijde, managing director of Ambuja Cements told reporters.

"We are going through somewhat rougher patch than we have been in the last few years and this is one of the ways we can offset that lack of profitability and the profitability growth," he said.

Ambuja on Wednesday posted a 31 percent fall in net profit for the April-June quarter on lower volumes. The deal is expected to be neutral on Holcim's earnings per share in the first full year following completion and will be accretive thereafter, Holcim chief executive Bernard Fontana said in a statement.

Shares in Ambuja fell 2.7 percent on Wednesday to 191.20 rupees and ACC dropped 1.5 percent to 1,230.55 rupees, while the main Mumbai market index closed down 1.4 percent. The deal announcement came after the market hours. Citigroup (C.N) was the sole financial advisor to Holcim on the transaction.