UltraTech Cement will acquire the cement business of Kesoram Industries on a share swap basis, both companies informed the bourses about their respective board approval for the deal.
While the companies did not disclose the deal size, a source in the know told Moneycontrol that it will be at an enterprise value of a little over Rs 7,600 crore, which includes the debt on Kesoram Industries’ book of around Rs 1,700 crore.
Shareholders of Kesoram Industries will get one share of UltraTech Cement for every 52 shares held by them, the companies said.
The demerger and merger will help Kesoram Industries in deleveraging the balance sheet by reduction of debt and outflow of interest, and unlock the value in cement business.
Kumar Mangalam Birla, the Chairman of AV Birla Group which owns UltraTech Cement, is also a promoter shareholder of Kesoram Industries. The acquisition will help UltraTech consolidate its position as the market leader.
Shares of Kesoram Industries closed at Rs 139.11 a piece on BSE on Nov 30, up 5 percent on news of the board meeting to consider a possible deal. UltraTech shares closed at Rs 9,000.65 per share, up 3.14 percent.
The Deal
As per the proposed deal, 59,74,301 new equity shares of UltraTech will be issued to the shareholders of Kesoram Industries. This will increase UltraTech’s equity capital to Rs. 294.66 crore consisting of 29.47 crore equity shares of Rs 10 each.
The cement business of Kesoram Industries includes two integrated cement units at Sedam (Karnataka) and Basantnagar (Telangana) with a total capacity of 10.75 mtpa (million tonne per annum). Out of this total capacity, 8.50 mtpa is clinker backed and 2.25 mtpa is surplus grinding capacity. The cement business also has a 0.66 mtpa packing plant in Solapur, Maharashtra.
The transaction is subject to the approval of shareholders and creditors, stock exchanges, NCLT, CCI and other regulatory authorities as may be required. The transaction is expected to be consummated within 9-12 months, subject to above regulatory approvals.
The Synergies
UltraTech referred to the acquisition target as a “good fit” as it will give it access to new geographies in Southern India through Kesoram's unit at Telangana.
“The transaction will provide UltraTech the opportunity to extend its footprint in the highly fragmented, competitive and fast growing Western and Southern markets in the country,” UtltraTech said.
Following the completion, UltraTech’s cement capacity will stand augmented to 149.14 mtpa including its overseas operations, the company said in a statement. The merger with UltraTech will also benefit the operations due to economies of scale resulting from synergies in procurement, logistics and fixed costs.
In the September-ended quarter (Q2FY24), Kesoram Industries’ sales jumped by 13 percent year-on-year (YoY), whereas net loss narrowed to Rs 58 crore from R 59 crore in the year-ago period.
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