UltraTech set to take over cement business of Kesoram Industries

Industrialist Kumar Mangalam Birla is set to take over the cement business of Kesoram Industries, a prized asset in the business empire of his grandfather, late B K Birla.

In separate announcements, Kesoram and UltraTech Cement disclosed an all-stock deal that would entail the B K Birla company demerging its cement business into India’s largest cement producer.

UltraTech said Kesoram had decided to demerge its cement business and approached UltraTech Cement in relation to it.

“The board of directors of UltraTech, at its meeting held today (Thursday), considered Kesoram’s proposal and approved a scheme of arrangement amongst Kesoram, the company and their respective shareholders and creditors,” it said.

Kesoram is led by B K Birla’s daughter, Manjushree Khaitan.

In 2018, UltraTech had acquired B K Birla firm Century Textiles’ cement business in a similar share-swap deal. 

The deal is being executed at an enterprise value of Rs 7,600 crore. 

UltraTech will issue one equity share of the face value of Rs 10 every 52 equity shares of Kesoram, also of face value Rs 10. The deal values Kesoram at Rs 173 per share, a 24 per cent premium to the closing on the BSE on Thursday.

Kesoram has two integrated cement units — at Sedam (Karnataka) and Basantnagar (Telangana) — with a capacity of 10.75 million tonnes a year.

“It will help enhance UltraTech’s geographic reach in southern markets such as Telangana where it does not have any plant. We believe UltraTech will be able to raise Kesoram’s operations to UltraTech’s standards in six to nine months, given its past record,” said Mangesh Bhadang, analyst, Centrum Broking.

The transaction, UltraTech said, would provide it an opportunity to extend its footprint in the highly fragmented, competitive, and fast-growing western and southern markets in the country.

The transaction requires the approval of shareholders and creditors, and regulatory authorities including the National Company Law Tribunal and Competition Commission of India. It is expected to be completed in nine-twelve months.

The cement business of Kesoram as on March 31, 2023, was Rs 3,517.45 crore, accounting for 99.54 per cent of its turnover.

Kesoram said the transfer of the business would unlock value for shareholders and assist in deleveraging of its balance sheet, including reduction in the debt and outflow of interest.

In a bid to deleverage the stressed balance sheet, pursuant to the scheme, the non-convertible debentures of Kesoram, listed on the BSE, would be transferred to UltraTech.

Kesoram, which has high-cost borrowing, had been trying to bring it down for some time. The company’s debt is around Rs 1,700 crore.

It had demerged the tyre business some years back. It was acquired by Himadri Speciality Chemical and Dalmia Bharat Refractories under the corporate insolvency resolution process.

Once the scheme is in place, Kesoram will focus on the rayon, transparent paper, and chemicals businesses.

India’s cement demand is expected to grow 8 per cent in FY24.