UltraTech to take over Kesoram's cement business in an all-share deal, enterprise value pegged at Rs 7,600 crore

Kolkata: UltraTech Cement is set to acquire the cement business of BK Birla Group's flagship company Kesoram Industries in an all-share deal, with a business valuation of approximately Rs 7,600 crore, including debt.

Kesoram announced that its board has approved the demerger of its cement business under a scheme of arrangement. In the deal, shareholders will receive one share of UltraTech Cement for every 52 Kesoram shares of Rs 10 each.

Kesoram currently has two integrated cement units at Sedam (Karnataka) and Basantnagar (Telangana) with a total installed capacity of 10.75 mtpa as well as a 0.66 mtpa packing plant at Solapur, Maharashtra. In 2022-23, Kesoram's turnover from cement operations was Rs 3,533.75 crore.

The deal was made within the Birla family. Kumar Mangalam Birla, the grandson of BK Birla, heads the AV Birla Group which owns UltraTech.

UltraTech is the third-largest cement producer in the world, outside of China, with a total grey cement capacity of 137.85 MTPA and the ongoing projects will take its capacity to 160 million.

The current management is under Manjushree Khaitan, the daughter of the late industry patriarch.

Kumar Mangalam Birla already holds a stake indirectly in Kesoram through his family investment vehicles.

The Kesoram management failed to infuse fresh capital to manage its Rs 1,700 crore high-cost debt with interest rates ranging between 18 per cent and 20 per cent.

'Now, the entire debt and preference shares exceeding Rs 1,700 crore will move with the demerged cement business to Ultratech,' said a Kesoram official.

'The deal valuation, including debt, is Rs 7,600 crore,' he said.

The demerger and merger will help Kesoram Industries meet its repayment obligations and deleverage its balance sheet, including reducing debt.

Kesoram recently lost control of Birla Tyres in an insolvency process.

The Kesoram board also withdrew the scheme of demerger with its wholly-owned subsidiary Cygnet Industries which will remain under Kesoram.

Kesoram will now retain Cygnet, which operates in the viscose rayon filament yarn and chemical manufacturing verticals and has around 2,500 employees. In FY23, it registered a turnover of Rs 260.62 crore and a loss of Rs 78.61 crore.

For this transaction, UltraTech will issue 59,74,301 new equity shares to the shareholders. This will increase its equity capital to Rs 294.66 crore, consisting of 29.47 crore equity shares of Rs 10 each.

The transaction will provide UltraTech with the opportunity to expand its footprint in the highly fragmented, competitive and fast-growing western and southern markets in the country, a statement said. The transaction is expected to be consummated within 9-12 months subject to above regulatory approvals.