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Ultratech Cement to acquire Kesoram Industries

01 December 20234 mins read by Angel One
To facilitate this demerger, UltraTech will issue 1 equity share of Rs.10/- face value for every 52 equity shares of Kesoram, valuing each share at Rs.10/-.
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In a significant move within the cement industry, Kesoram Industries Limited has announced its decision to demerge its Cement Business, paving the way for an acquisition by UltraTech Cement Limited. The board of directors at UltraTech has given the green light to this transformative move, approving a Scheme of Arrangement that positions UltraTech to absorb Kesoram’s Cement Business.

Details of the Demerger:

Under the proposed scheme, Kesoram will demerge its Cement Business, comprising two integrated cement units in Sedam (Karnataka) and Basantnagar (Telangana), boasting a total capacity of 10.75 million tonnes per annum (mtpa). The Cement Business also includes a packing plant in Solapur, Maharashtra, with a capacity of 0.66 mtpa.

To facilitate this demerger, UltraTech will issue 1 equity share of Rs.10/- face value for every 52 equity shares of Kesoram, valuing each share at Rs.10/-. The transaction involves the issuance of 59,74,301 new equity shares, increasing UltraTech’s equity capital to Rs. 294.66 crores.

Strategic Implications:

This strategic acquisition provides UltraTech with a unique opportunity to expand its presence in the competitive Western and Southern markets, where the Cement Business of Kesoram currently operates. Notably, this move allows UltraTech to establish its footprint in Telangana, a region where it does not currently have a manufacturing plant.

The operations are expected to benefit from economies of scale, resulting from synergies in procurement, logistics, and fixed costs. This, in turn, is anticipated to strengthen UltraTech’s position in the rapidly growing cement industry.

Regulatory Approvals and Timeline:

While the transaction is subject to various regulatory approvals, including those from shareholders, creditors, stock exchanges, NCLT, and CCI, the parties involved anticipate the consummation of the deal within 9-12 months.

Financial and Operational Impact:

Upon completion of the Scheme of Arrangement, UltraTech’s cement capacity will witness a substantial augmentation, reaching 149.14 mtpa, inclusive of its overseas operations. This aligns with the company’s broader goal of achieving a 200 mtpa cement capacity in India, reinforcing its confidence in the country’s growth potential.

Rationale Behind the Demerger:

The demerger is anticipated to yield multiple benefits for both Kesoram and UltraTech:

For Kesoram Industries:

  • Unlocking the value of the Cement Business for shareholders.
  • Facilitating balance sheet de-leveraging by reducing debt and interest outflow.
  • Enabling a focused approach on core business areas such as rayon, transparent paper, and chemicals.

For UltraTech Cement:

  • Expanding into markets where the company has no physical presence.
  • Creating value for shareholders through the acquisition of operational assets, leading to operational efficiencies.
  • Strengthening market presence and meeting additional cement volume requirements.
  • Capitalizing on synergies in manufacturing, distribution processes, and logistics for enhanced efficiency.

In conclusion, this strategic demerger marks a pivotal moment for both Kesoram Industries and UltraTech Cement, setting the stage for increased competitiveness, operational efficiency, and geographic expansion in the dynamic Indian cement industry.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

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