UltraTech Cement acquires Kesoram Industries' cement business

The company will issue one share for every 52 shares of Kesoram Industries' cement business

UltraTech Cement acquires Kesoram Industries’ cement business

In a significant development within the Indian cement industry, UltraTech Cement has taken a strategic step towards enhancing its production capacity and market presence. The company's board of directors has approved the acquisition of Kesoram Industries ' cement business.

The payment will be made in terms of equity and preference shares. UltraTech will issue one equity share for every 52 equity shares of Kesoram Industries. Additionally, UltraTech will issue 63,50,883 non-convertible redeemable preference shares in exchange for Kesoram's preference shares.

Based on this arrangement, the deal is valued at approximately Rs 5,432 crore. As a result of this transaction, UltraTech's promoter stakes will decline by 1.3 percentage points to 57.7 per cent. The company will also take over the Rs 2,000 crore debt of Kesoram's cement business. The transaction is expected to be completed within nine to 12 months, subject to regulatory approvals.

A closer look into Kesoram Industries

Kesoram Industries is a flagship company of the BK Birla group. It primarily draws its revenue from two segments: cement & Rayon and TP & chemicals.

In FY23, approximately 93 per cent of its total revenue was generated from its cement segment. The company's cement business has two integrated cement units in Karnataka and Telangana, with a total installed capacity of 10.75 million tonnes per annum (MTPA).

The company has been consistently making losses, and the cement division has also been struggling with inefficiencies. Here is the cement division's performance in recent years.

Particulars FY23 FY22 FY21 FY20 3Y growth (% pa)
Revenue (Rs cr) 3534 3540 2415 2330 14.9
Operating profit (Rs cr) 273 475 361 157 20.2
Operating profit margin (%) 7.7 13.4 14.9 6.8 -
Asset turnover 1.3 1.3 1 0.9

The rationale behind the acquisition

The level of competition in the Indian cement industry has been consistent. Additionally, there has been an ongoing consolidation. Just a few months ago, Ambuja acquired Sanghi Industries to increase its capacity and deepen its presence.

The primary motivation behind this acquisition is to leverage synergies and strengthen UltraTech's position in the Indian cement market. This move will give UltraTech access to assets that are ready to use and have no gestation period. Kesoram Industries, possesses a robust cement business consisting of two integrated cement units in Karnataka and Telangana, with a total installed capacity of 10.75 million tonnes per annum (MTPA).

UltraTech has been pursuing the goal of achieving a cement capacity of 200 MTPA in India, both organically and inorganically. This move will not only increase the company's total capacity by eight per cent to 149.1 MTPA but will also give it access to geographies where it has a lower level of penetration (Karnataka and Telangana), thus moving it closer to its goal.

Also read: Raymond's acquisition of the Maini group

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