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.<br /> <br /> According to <span style="font-weight: bold;">Binod Kumar Modi, Sr Research Analyst, Reliance Securities,</span> '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. <br /> <br /> 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.'<br /> <br /> Modi goes on to highlight two examples about how logistics synergies may come: <br /> <ul> <li>South Maharashtra is a common market for both companies. ACC and ACL cater this market from their Wadi and Chanderpur mother plant, respectively. ACL would be benefitted if it sources products from the Wadi plant as it can reduce the lead distance of 200-300 km.</li> <li>The Jaipur market is catered by Lakeri (ACC) and Rabriyawas (ACL). Since distance between Jaipur and Rabriwas is lower by 50 km than Jaipur-Lakeri, ACC would be benefitted in low lead. Unlike earlier, companies are abstaining from mentioning any potential cost savings, our rough calculation shows that if it benefits them to the extent of Rs 50 per tonne in freight cost, both companies can save ~Rs1.3-1.5 billion per annually.</li> <li>ACC has a cement capacity of 33.5 million tonne while Ambuja has 29.65 million tonne. Both firms became a part the Holcim Group in 2005. Following the merger of Holcim with Lafarge SA in 2015, a new entity LafargeHolcim was created to become the world's largest cement producer.</li></ul>