ACC and Ambuja Cements (ACL) - the two Indian units of LafargeHolcim ' have entered into a 'master supply agreement' (MSA) with each other. Both companies have sought approval from their shareholders to 'enter into, execute and deliver the master supply agreement' with each other, as per separate regulatory filings by both companies. The agreement is for the supply of cement, clinker and raw materials such as fuels, fly-ash, slag and gypsum, and will also include spare parts.
According to Binod Kumar Modi, Sr Research Analyst, Reliance Securities, 'Having called off the merger plan, ACC and Ambuja Cement finally entered into a Master Supply Agreement. While both companies have enlisted pricing formula for cement, clinker and other inputs, there is no any swap agreement between these two pertaining to clinker or other materials.
We believe that both companies are unlikely to see any benefits in fixed costs, whereas major benefit may come from the distribution side. Synergies from the distribution side may prevail post the application of the MSA.'
Modi goes on to highlight two examples about how logistics synergies may come: