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UltraTech Cement, India’s largest cement maker, on Thursday said its board of directors has approved a scheme of arrangement to acquire the cement business of Kesoram Industries in an all-stock deal, which will enhance its production capacity and provide it the opportunity to extend its footprints in fast growing western and southern markets in the country.
According to the deal, BK Birla Group flagship company Kesoram Industries has decided to demerge its cement business, consisting of two integrated cement units in Karnataka and Telangana with a total installed capacity of 10.75 million tonnes per annum. The business will be merged into UltraTech Cement, the cement flagship company of the Kumar Mangalam Birla-led Aditya Birla Group.
Gross enterprise value of the deal stands at over ₹7,600 crore, sources close to the development told businessline.
Share-swap deal
Under the share-swap deal, UltraTech Cement will issue one equity share of the face value of ₹10 each for every 52 equity shares of Kesoram Industries of face value ₹10 each as recommended by the valuers and accepted by the board, UltraTech said in a stock exchange filing.
“For the purpose of this transaction, 59,74,301 new equity shares of the company will be issued to the shareholders of Kesoram as on the record date as defined in the scheme. This will increase UltraTech’s equity capital to ₹294.66 crore consisting of 29.47 crore equity shares of ₹10 each,” it informed.
Manjushree Khaitan-led Kesoram said the scheme will assist it in deleveraging the balance sheet, including reduction of debt and outflow of interest and unlock the value in cement business for the shareholders of the company. “The scheme was approved after considering the recommendation and report of the audit committee and the committee of independent directors of the company,” Kesoram Industries said in a stock exchange filing.
₹2,000-crore debt
Ultratech would take over all the debts of Kesoram’s cement business. Currently, the B K Birla Group company’s cement business debt stands at roughly Rs 2000 crore, while valuation adjustment of around ₹150 crore for other contingent liabilities.
The transaction is expected to be consummated within 9-12 months subject to above regulatory approvals.
The scheme is subject to the receipt of approval of the Competition Commission of India, shareholders, lenders, creditors, the stock exchanges, the respective jurisdictional the National Company Law Tribunals, among others.
UltraTech said upon completion of the proposed merger of Kesoram’s cement business into it, its total capacity will stand augmented to 149.14 mtpa, including its overseas operations. The proposed transaction will accelerate the company’s path to achieving its stated goal of 200 mtpa cement capacity in India.
Continuing the robust ride of the past two fiscals, India’s cement demand will grow 10-12 per cent year-on-year to around 440 million tonnes in the current financial year, driven by strong offtake from the infrastructure segment, according to rating agency Crisil.
“Combined with stable cement prices and softening power and fuel costs, operating profit of manufacturers is expected to recover by ~₹200 per tonne from a multi-year low of ₹770 per tonne last fiscal,” it added.
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