ACC, Ambuja renew key agreement!

ACC, Ambuja renew key agreement!

Last updated: 24 Dec, 2020 | 09:19 am

ACC, Ambuja renew key agreement!

ACC and Ambuja Cements have announced the renewal of its TKH (Technology and Know-How) Agreement with Holcim Technology Ltd. Under the agreement, the companies will pay TKH fees @1% of net sales each year, to Holcim Technology Ltd for a period of 2 years w.e.f. January 01, 2021, i.e., on the same terms of the existing TKH Agreement. ACC and Ambuja Cements are both LafargeHolcim group companies.

Significance of the agreement for ACC and Ambuja

  • Earlier, there were concerns among investors that the fees may be hiked by 1% during the renewal of the agreement. During the last renewal, the parent company (Holcim) had agreed to a fee of 1% of revenues, after significant opposition to a proposed 2% fee. Generally, LafargeHolcim group charges this fee at a higher rate in most other countries, and analysts had said that a rise cannot be ruled out and the event remains a big overhang. 
  • According to estimates by global firm CLSA, a 1% fee rise could reduce Ebitda/tonne by ₹50/tonne. This had remained a key overhang on the stock. 
  • With overhang behind, investors' focus would again shift to core business and earnings.
  • Global brokerage firm Jefferies has reiterated that ACC and Ambuja Cements remain its top picks in the cement sector. 
  • Brokerage firm Antique has maintained a buy on ACC with a target price of Rs 1,980 and a buy on Ambuja, too, with a target price of Rs 295.
  • Following the announcement of the agreement, Shares of Ambuja Cements jumped 10% while those of ACC jumped 7% post announcement of the agreement.
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