Grasim Industries, a part of the Aditya Birla Group having interest in the cement and textile business, may demerge its cement division to bring it under UltraTech Cement, the company it acquired from Larsen & Toubro (L&T) in 2003.
L&T sold its residual 11.5 per cent stake in the company this June, facilitating merger of the cement businesses under one entity.
The board of Grasim Industries is meeting on Saturday to discuss “a proposal for restructuring of its business,” said the company in a note to the Bombay Stock Exchange.
A company spokesperson declined to comment if the proposal involved demerger of the cement business for bringing it to UltraTech. However, sources in the market said the company was expected to do so. Currently, the company operates its cement business under itself, as well as under its wholly-owned subsidiary, UltraTech.
Industry analysts said there could be two ways of restructuring the cement segment. The company could either simply merge UltraTech with itself by issuing shares to the shareholders of UltraTech or transfer its cement division to UltraTech and make a new entity altogether.
UltraTech has an annual cement making capacity of 23 million tonnes; Grasim’s is around 20 million tonnes. In 2007-08, the company phased out Grasim’s national brand, Birla Super, to establish UltraTech as a single brand. If merged, they will become India’s largest cement firm, with a combined capacity of 46 million tonnes a year. However, the merger would attract a substantial capital gains tax, besides stamp duty on plant and machinery that varies between 1-8 per cent from state to state. Currently, UltraTech operates in the central, southern and western regions, while Grasim has its presence in the northern region. But the cement is sold everywhere under the UltraTech name.
Adesh Gupta, group executive president and chief financial officer, Grasim had earlier said, “The merger would happen eventually, but when this would happen, one cannot say.”
On the BSE, the share price of UltraTech on Thursday jumped 6.37 per cent to close at Rs 848.90, whereas Grasim’s stock declined 2.44 per cent to Rs 2,700.80.