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The logo of French building material Lafarge is seen on cement trucks at a production plant in Paris, France, February 22, 2016. In July 2015.Reuters file

LafargeHolcim's cement businesses in India — ACC and Ambuja Cements — are planning to merge, creating the second largest cement producer in the country by market capitalisation, after UltraTech Cement.

The possible merger of two cement companies in India — ACC and Ambuja Cements — triggered a rally in the share prices of the cement makers on Monday, aided by a re-rating of the respective stocks by CLSA.

Ambuja Cements closed 5.89 percent higher at Rs 260.80, while ACC ended with 3.57 percent gain at Rs 1,714.40.

Based on Monday's closing prices, ACC's market cap was Rs 32,194 crore, while that of Ambuja Cements was Rs 51,785 crore. UltraTech Cement ended with a valuation of Rs 1,21,078 crore.

ACC Ltd and Ambuja Cements Ltd. are part of LafargeHolcim, the world's largest cement maker based out of Zurich, Switzerland.  

Holderind Investments — the investment arm of LafargeHolcim — holds 63.62 percent in Ambuja Cements and 4.48 percent in ACC while Ambuja Cements has a 50.5 percent stake in ACC, according to the latest shareholding pattern details filed by the two companies with BSE.

The merger, as and when it happens, would mark the third M&A move in recent years, the other two being the decision to buy JP Associates's cement plants by Aditya Birla Group company UltraTech Cement for Rs 16,189 crore last October and Nirma acquiring Lafarge India's cement assets at an enterprise value of $1.4 billion (around Rs 9,400 crore) in July last year. 

The JP Associates plants have a total capacity of 21.1 million tonnes per annum (MTPA) located in Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh. 

Nirma acquired three cement plants and two grinding stations with a total capacity of around 11 million tonnes per annum (mtpa) from Lafarge India.

The ACC-Ambuja Cements could well create a combined entity with huge capacity. In a note, brokerage Nirmal Bang Institutional Equities said the combined entity will have capacity of 64 mtpa and sales of 47 million tonnes. 

To put things in perspective, UltraTech Cements sold 47.62 million tonnes in 2016-17 and its total capacity, including those of JP Associates, is 90 million tonnes.

If the merger were to go through, the parent's investments in India could also rise over the years. "We believe that going forward the parent, LafargeHolcim, will take favourable steps such as increasing the capex commitment to India, reducing the royalty paid for the use of Holcim brand and further improving efficiency of cement plants which augurs well for the group," the brokerage said.

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Workers walk in front of an UltraTech concrete mixture truck at the construction site of a commercial complex on the outskirts of the western Indian city of Ahmedabad April 22, 2013.Reuters file