Cement stocks in focus: Why JP Morgan believes emergence of cash-rich Ambuja Cement negative for peers – Check Details

Most of the cement companies’ shares are either showing volatility or trading weak during Monday’s session on the exchanges after global brokerage firm JP Morgan mentioned that the emergence of cash-rich Ambuja Cement with aggressive new owners is negative for peers. 

Adani Group last week mentioned that they have completed the acquisition of Ambuja Cement and ACC. Shares of the former company hit a new life high and surged nearly 11 per cent, while the latter gained over 4 per cent on the BSE. 

The new promoters of Ambuja are mulling to infuse Rs 20,000 in the company through preferential allotment of warrants. has launched a warrant issue of 47.4 cr. In this regard, the company has called an EGM (Extraordinary General Meeting) for approval from shareholders. 

Ambuja Cements has sought approval for allotment of preferential allotment of 47.74 crore warrants at a price band of Rs 418.87 to Harmonia Trade and Investment Ltd, a promoter group entity, totalling Rs 20,001 crore in one or more tranches, according to a news agency PTI. 

According to JP Morgan, Ambuja would become a more cash-rich company in the Indian cement sector after warrant issuance. It gives an underweight rating to the stock, with a reduced target of Rs 309 apiece and a neutral call on ACC with Rs 2110 per share target. 

Peer companies such as UltraTech Cement and Shree Cement declined by over 3.5 and 1 per cent to Rs 6245 and 23066 per share on the BSE. The former is down 0.5 per cent and the latter is trading flat with a positive bias at around 01:50 PM on the BSE. 

While other mid and small-cap companies such as The Ramco Cement, Dalmia Bharat and JK Cement also witnessed a decline, however, each of them is trading flat at 01:50 pm on the BSE today. 

Domestic brokerage firm Motilal Oswal said, “A consolidation in the industry if it occurs, will boost pricing power, synergies in the form of cost reduction and operational efficiency; and cross-branding, which will help expand market reach.” 

Most of the bigger players are eyeing inorganic growth opportunities, which have gathered pace after the foray of the Adani group into the Cement business, it said, adding that a 5-37 per cent rise in most of the cement stocks is seen, lately, on rising hopes of consolidation in the sector.