Century Textiles and Industries’ decision to divest its cement asset to UltraTech Cement will not only unlock value for shareholders, but also provide the company an opportunity to deleverage its balance sheet.
Currently, BK Birla-owned Century Textiles has exposure to the cement, textiles, pulp and paper and real estate businesses.
The company requires significant capital to modernise and grow these businesses. But the current leverage and cash flow does not provide flexibility to raise growth capital.
The divestment of the cement division with associate liabilities, including debt of ₹3,000 crore, will bring down net debt and EBITDA to 1.6 times from 3.1 times.
On the reason for spinning off the cement asset, Century Textiles said some of the cement plants are old and require significant capital expenditure to modernise and enhance product quality.Besides, it will require high-maintenance capex for its upkeep. The cement plants were operating at 74 per cent capacity utilisation, it said.
The existing mines at the Raipur plant had limited limestone reserves. Therefore, additional mines have been acquired in auction. It requires an investment of ₹150 crore to acquire land for developing the mine and this will be invested by UltraTech, it said.
Birla Estates is poised to capitalise on land parcels in Mumbai, Kalyan and near Pune and unlock value for shareholders, it added.
The company has 30 acres in Worli, 132 acres in Kalyan and 45 acres in Pune.
The company plans to roll out premium and mid-income housing and commercial projects in the surplus land.
In addition, Birla Estates has signed an MoU to develop 1 million sq ft of residential project in Gurgaon. It plans similar MoUs to develop a residential, commercial and retail portfolio to achieve this plan and requires significant funding over the next five years, said the company.
The pulp and paper business has its locational advantage and has performed well in the past three years.
The company plans to modernise the facility and expand the tissue capacity and optimise the product mix to enhance profitability, it said.
Century Textile will continue to have exposure to the cement business through its highly liquid equity shareholding in UltraTech, the company said.