UltraTech’s Acquisition of Kesoram’s Cement Business: An All-Share Deal

UltraTech Cement, based in Kolkata, is poised to acquire the cement business of Kesoram Industries, a flagship company of the BK Birla Group. This strategic move comes in the form of an all-share deal, with a business valuation of approximately Rs 7,600 crore, inclusive of debt. The board of Kesoram Industries has given its approval for the demerger of its cement business under a scheme of arrangement. Shareholders will receive one share of UltraTech Cement for every 52 Kesoram shares of Rs 10 each.

Cement Business Overview

Kesoram currently operates two integrated cement units in Sedam (Karnataka) and Basantnagar (Telangana), boasting a total installed capacity of 10.75 million tonnes per annum (mtpa). Additionally, it has a 0.66 mtpa packing plant in Solapur, Maharashtra. In the fiscal year 2022-23, Kesoram’s turnover from its cement operations amounted to Rs 3,533.75 crore.

Key Players and Management

The transaction is significant within the Birla family, as Kumar Mangalam Birla, grandson of BK Birla, leads the AV Birla Group, which owns UltraTech Cement. Manjushree Khaitan, daughter of the late industry patriarch, currently manages Kesoram.

Financial Implications and Debt Restructuring

The acquisition addresses Kesoram’s financial challenges, particularly its high-cost debt exceeding Rs 1,700 crore with interest rates ranging from 18 to 20 per cent. The demerger and subsequent merger with UltraTech will facilitate debt consolidation, aiding Kesoram in meeting repayment obligations and improving its balance sheet.

Operational Expansion and Market Reach

UltraTech, already the third-largest cement producer globally (excluding China), stands to gain significant operational leverage through this acquisition. The deal allows UltraTech to enhance its capacity from 137.85 MTPA to 160 million, strengthening its presence in the competitive western and southern markets of India.

Transaction Details and Timeline

As part of the transaction, UltraTech will issue 59,74,301 new equity shares to shareholders, increasing its equity capital to Rs 294.66 crore, comprising 29.47 crore equity shares of Rs 10 each. The entire process, subject to regulatory approvals, is expected to conclude within 9-12 months.

The acquisition signifies a strategic move for both UltraTech and Kesoram, leveraging synergies and strategic advantages to drive growth and competitiveness in the Indian cement industry.