Aditya Birla group company UltraTech Cement recently has said it will acquire the cement business of B K Birla firm Century Textiles through a share-swap deal, as per news reports.
Under the arrangement, Kumar Mangalam Birla-led UltraTech will merge Century Textiles’ 13.4 million cement capacity with itself, taking UltraTech’s capacity to 105.9 million tonnes per annum (mtpa) in the domestic market, and consolidate its leadership position in the Indian cement industry. After completing the deal, UltraTech will have a total capacity of 109.9 million tonnes (mt) making it the third-largest cement player globally, excluding China.
Century Textiles will demerge its cement business, which accounts for 53.2 per cent of its revenue.UltraTech will give Century Textiles shareholders one share for every eight shares held.
According to B K Birla’s succession plan, Kumar Mangalam Birla will get control of Century Textiles, in which he was appointed vice-chairman in 2015. UltraTech will take over a debt of Rs 30 billion from Century Textiles. UltraTech’s equity will be diluted by about 5 per cent to Rs 2.89 billion.
Century Textiles’ cement business consists of three integrated units — one each in Madhya Pradesh, Chhattisgarh, and Maharashtra — with a capacity of 11.4 mtpa, and a grinding unit in West Bengal of 2 mt, while an additional capacity of 1.2 mt is pending statutory clearance. UltraTech will gain leadership position in central and east Indian markets, besides extending its footprint in the west and south.
UltraTech will invest in the plants and turn them around, bringing them at par with its own profitability. There would be synergies in procurement, distribution, branding, and logistics too. Analysts say UltraTech has a track record of turning around cement capacities after acquisition and give the example of Jaiprakash Associates’ cement capacity of 21.2 mt, which it acquired in July 2017. Capacity utilisation in the March 2018 quarter at 75 per cent was higher than analysts’ expectations of 70 per cent, as per the reports.