Birla Corp seals Rs 4,800-crore cement deal with RInfra

Deal subject to CCI clearance, will help seller to retire loans and become debt-free on standalone basis

Anil Ambani-owned Reliance Infrastructure on Thursday sold its cement subsidiary to Birla Corp for Rs 4,800 crore at a valuation of $140 a tonne.

Reliance Cement has a capacity of 5.5 million tonnes per annum (mtpa) in Madhya Pradesh and Uttar Pradesh. While the transaction will boost Birla Corp’s capacity from 10 mtpa to 15.5 mtpa, the flagship company of M P Birla group will still not be among India’s top five cement companies.

“Reliance Cement fits our plans to grow the business profitably very well and offers lucrative prospects for creating synergy with existing operations. It provides an excellent platform for increasing our footprint in existing as well as new geographies,” said Harsh V Lodha, chairman, Birla Corp.

RInfra said, “The transaction is subject to approval of the Competition Commission of India and other applicable regulatory approvals.” Reliance Infrastructure had consolidated debt of Rs 25,800 crore at the end of the last financial year and is selling several assets to improve financial health. The group had announced plans to raise Rs 14,000 crore by selling cement and road assets by March 2017. In November, Reliance Infrastructure said it was selling a 49 per cent stake in its power generation, distribution and transmission business in Mumbai to Canada’s Public Sector Pension Investment Board for an estimated sum of Rs 3,500 crore.

“This is the first step in our plan for making RInfra debt-free on a standalone basis. The other initiatives on Mumbai distribution and roads are on track,” said Lalit Jalan, CEO, RInfra. The company stock on BSE closed at Rs 409.85, down 5.85 per cent.

Analysts said the deal is fairly valued at an enterprise value of $140 per tonne. “However, I believe there are certain issues with respect to Birla Corp, which is where we need some clarity. For instance, if you look at the markets they operate in, they are not able to extract higher realisations as compared to their peers despite being a known brand. We also need to see how they are going to integrate the acquisition with the company,” said an analyst with a domestic brokerage firm on request of anonymity.

“For the industry, the deal clearly shows that there is hardly any interest in the market for cement M&As. The plant is pretty new — just a couple of years old. Even Reliance Infra was earlier expecting over Rs 5,000 crore, but they have got just Rs 4,800 crore. That tells you the state of the M&A appetite,” he added.

The Ambani group — which has combined debt of Rs 98,800 crore — has also announced that Reliance Communication will sell its telecom tower subsidiary to private equity firms Tillman Global Holdings and TPG Asia. An Update on the deal is expected anytime.

Interestingly, a transaction between Birla Corp and Lafarge India collapsed early this week. In August last year, Birla Corp had acquired 5.15 mtpa cement capacity of Lafarge India in Chhattisgarh and Jharkhand for Rs 5,000 crore. But the deal failed as an amendment in the Mining Act prohibited transfer of mining rights in case of asset sale. Lafarge now plans to sell its entire asset of 11 mtpa capacity in India through share sell to complete its global merger with Holcim. Birla Corp said it is looking for legal recourse on the failed deal with Lafarge.