Says after the Grasim deal, enterprise value of UltraTech will go up substantially.
The Aditya Birla Group’s chairman, Kumar Mangalam Birla, today sought to allay the concerns of Grasim investors over the proposal to spin off the cement business into another group firm, which will merge with Ultratech.
Though the Grasim stock was marginally up by 0.11 per cent to Rs 2,511.95, the concerns had seen the stock tumble by more than 7 per cent yesterday as many believed the company minus its cement unit, which contributed 70 per cent of its revenue last year, will get a valuation of a holding company, which is usually lesser than that of a manufacturing company.
Birla today said the merger process will be completed by June 2010. With the merger, the combined entity will become the 10th largest cement maker in the world and also the largest in the country, with a 49-million-tonne capacity. Post-merger, Grasim’s holding in the consolidated entity would be somewhere between 55 and 65 per cent.
Birla said the restructuring has been planned on three parameters. First, Grasim’s direct shareholding in UltraTech should only enhance. Second, Grasim’s parentage should remain intact. Third, it will help achieve financial flexibilities to support a higher rate of growth for the company. Grasim would now focus on viscose staple fibre (VSF) and cement business. The company recently invested Rs 1,000 crore to add additional 25 per cent capacity for VSF production. The cash flow from Grasim will remain intact for the growth of VSF and cement businesses.
Meanwhile, UltraTech Cement has given in-principle approval to the proposal to merge with the group firm, Samruddhi Cement, the cement business of Grasim Industries. Birla said “Ultratech got a proposal from Samruddhi for considering the merger. Later, the board has given its in-principle approval. We have appointed Bansi S Mehta And Co as the valuer and UBS as the investment banker for the proposed merger.”
Earlier, UltraTech said in a statement it found the Samruddhi proposal “attractive” and set up a committee to evaluate it. The committee would be an extension of the board and it will overlook the valuation and swap ratio fixing for the merger. It is expected to get back to the board with its recommendations by the first week of November, UltraTech said.
The Aditya Birla Group, which had acquired UltraTech from engineering giant L&T in 2004, had planned to hive-off Grasim cement into Samruddhi, a wholly-owned subsidiary of Grasim Industries. The demerged entity would be listed and then merged with UltraTech.
Last week, Grasim Industries said it would consolidate its cement businesses by merging Grasim cement with UltraTech, which together will have a capacity of 49 million tonnes per annum or 20 per cent of the country’s cement production.
The group has seen its cement capacity go up from 3.5 million tonnes just 11 years ago and plans to add another 25 million tonnes in the next three-five years.
Analysts said the merger with UltraTech will create more headroom for future equity and allow the group to exceed the cement industry’s growth pace of 8-9 per cent a year.
