Birla moves ahead with cement plan

Mumbai: The Aditya Birla Group on Tuesday moved one step closer to consolidate its cement business with the UltraTech Cements Ltd board giving an in-principle approval to merge Samruddhi Cements Ltd with itself.


Clearing the air: Kumar Mangalam Birla says once investors fully absorb the implication of the deal, the reaction will be positive. Abhijit Bhatlekar / Mint


The board also appointed Bansi Mehta and Co. and UBS India to value the two firms and arrive at a swap ratio of shares for the merger that will create India’s largest cement company with 49 million tonnes capacity, controlling 21% of the market. The merged entity will be the world’s 10th largest cement maker. The reports will be submitted by the first week of November.

The merger aims to address investor confusion on which of the two group companies was the group’s vehicle for growth, Aditya Birla Group chairman Kumar Mangalam Birla said, addressing the media for the first time after the proposal was made public.

Explaining the rationale behind the merger proposal, Birla said the investors can now own shares in a pure cement company; UltraTech can grow twice as fast after the merger than in the current structure as a subsidiary of Grasim Industries Ltd.

Last week, Grasim Industries said it would hive off its cement business to Samruddhi Cements, an investment company of the group with interest in telecom, aluminium, financial services and retail.

After the merger, shareholders of Grasim will own shares in a pure cement company UltraTech as well as in the parent which makes viscose staple fibre, an alternative to cotton used to make garments.

The merger will rerate UltraTech, said Saurabh Misra, UltraTech’s managing director. The Birlas were evidently concerned about the valuations that their two cement companies commanded in the market. Its main rival Swiss cement giant Holcim’s ACC Ltd’s enterprise value is pegged at $147 a tonne of cement making capacity and even a regional player such as Shree Cement Ltd commanded an enterprise value of $160 a tonne of cement making capacity. In contrast, UltraTech’s valuations were $110 a tonne.

Grasim shares lost 7.1% on Monday, the first trading day after the merger announcement, but rose marginally (0.11%) to close at Rs2,511.95 on Tuesday.

Birla also tried to allay investor fears. “I don’t think Grasim will be marginalized,” Birla said, “Keeping that strong parentage has been a strong consideration,” he emphasized.

Grasim Industries will always be an operating company with cement and VSF assets, Birla added. Once investors fully absorb the implication of the deal, the reaction will be positive, Birla said.