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UltraTech - India's largest cement company - Views on News from Equitymaster
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UltraTech - India's largest cement company
Nov 16, 2009

The Aditya Birla group has set the tone for another wave of consolidation in the cement industry. Grasim's subsidiary Samruddhi Cement, the demerged cement division of Grasim Industries, will be merged with UltraTech, an Aditya Birla group company.

The deal: UltraTech Cement has positively responded to Samruddhi Cement's proposed consolidation with the former. As per the board's approval, Samruddhi Cement will receive 4 equity shares of UltraTech of the face value of Rs 10 each for every 7 equity shares of face value of Rs 5 each held in Samruddhi Cement. UltraTech would issue 149.5 m new shares, which would result in an increase in its equity capital to Rs 2,742 m. Upon completion of the merger, Samruddhi Cement will cease to exist.

Post merger scenario: The merger of Samruddhi Cement with UltraTech would result in the Aditya Birla group becoming the largest cement player domestically with assets under one entity - UltraTech Cement. The merger is in line with the group's objective to consolidate all cement assets under one entity thereby creating one platform to explore future growth potential.

Post merger scenario
Capacity Unit UltraTech Samruddhi Post merger - UltraTech
Grey Cement MTPA 23.1 25.7* 48.8
White cement MTPA - 0.6 0.6
TPPs MW 236 268 504
RMC(ready mix concrete) No. of plants 32 36 68
No. m cubic meters 4.99 6.76 11.76
MTPA - million tonnes per annum, TPPs -thermal power plants & MW- mega watts.
*including grinding mills of 3.1 MTPA to be operational in Q3FY10

Market share Post merger (%)
North 16
West 29
East 20
South 15
All India 19*
Upon the merger, UltraTech Cement would become the largest cement player domestically with capacity of 48.8 MTPA under operation and the 10th largest in the world. It will become a pan India player with approximately 19% market share and a manufacturer of specialty products like White Cement and Wallcare Putty. The appointed date for amalgamation is July 1, 2010. Hence the entire process is expected to get completed by 2QFY11.

Our view: The move is in line with the group's objective to consolidate cement assets under single entity that would result in a single platform to explore opportunities in the cement industry and at the same time enjoy economies of scale. The merger will not only transform UltraTech into the largest cement manufacturing company domestically but would also enable the company to gain pan India presence. Apart from the geographical revenue diversification we believe that operation and logistics activities will also get streamlined with cement assets being held under single entity. UltraTech will also gain financial muscle as Grasim would continue to hold strategic interest in UltraTech and would support its growth going forward. Grasim would hold 60.3% stake in UltraTech's expanded equity capital and balance would be held by shareholders of UltraTech Cement and Samruddhi Cement.

The whole idea behind demerging cement assets under Grasim Industries and then consolidating under one single entity- UltraTech Cement is to concentrate on the cement and VSF businesses separately and evaluate growth opportunities of both the business segments individually. There will be no loss of economic interest to either of the entity's shareholders.

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