ACC and Ambuja featured: Technical know-how fees kept at 1% of sales

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Key highlights

  • ACC / AMBUJA: Great relief as royalty status quo with the parent company
  • Jefferies: ACC and Ambuja Cement are the best picks in the industry
  • Analysts say the announcement clears the glut of both stocks

Mumbai: At a board meeting yesterday, ACC / Ambuja announced the renewal of the technical know-how (TKH) rates to the parent company at 1% of net sales for the next 2 years, on January 1, 2021. The agreement is renewed with the same terms and conditions as in the current agreement that expires in December 2020.

Broking House Antique believes this announcement wipes out the surplus on both stocks in connection with speculation on rising parent fees and is positive for both stocks. As per Antique, renewal of the agreement is not required for shareholder approval. According to Antique, while the quantum of increase in cash outflow in the event of an expected increase was not very relevant, the intent of the parent company was considered a key concern.

Antique believes that ACC / Ambuja’s price performance has underperformed competitors over the past month, with shares down 8.5% to 8.5% compared to competitors Ultratech / Shree Cement moving + 3% / – 2 % – largely attributable to speculation about early parent change.

With this leap behind, investors’ attention would again shift to the core business and earnings of the two companies, as per Antique. Brokerage firm Jefferies says ACC and Ambuja Cement are their best industry picks. They say it’s a big relief from the royalty status quo as the existing 1% net revenue charge continues. Investors were concerned about the possibility of a hike. The companies have previously stated that the parent group Lafarge Holcim (LH) has provided access to the latest technologies and practices on an ongoing basis under the TKH agreement which have helped them achieve substantial benefits.