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Grasim To Hive Off Cement Business

By Reuters

  • 04 Oct 2009

Aditya Birla group will hive off the cement business of Grasim Industries into unit Samruddhi Cement in a cashless transaction and later merge it with group firm Ultratech Cement, it said Saturday.

The move is aimed at consolidating the group's cement businesses into a single entity over the next eight to ten months to maximise shareholders value.

Grasim and Ultratech Cement now operate a combined production capacity of 42 million tonnes a year or a fifth of India's cement capacity, and will raise this to 49 million tonnes by March-end.

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"The restructuring move is designed to ensure Grasim's majority stake in, and continued support to, the rapidly growing cement business," chairman Kumar Mangalam Birla said in a statement.

India's cement market has seen demand revive in the past few months on resilience in rural consumption and higher spending on roads and infrastructure projects, but likely overcapacity later this year could put pressure on prices.

Swiss cement major Holcim currently controls a fifth of India's 200-million tonne cement market, through ACC and Ambuja Cements.

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Samruddhi will issue one new equity share to Grasim shareholders for every share held and the process is expected to be completed in four to six months.

The Aditya Birla group plans to list Samruddhi.

"This is an intermediate step and eventually the total cement business will be consolidated in a single firm, once Samruddhi makes a proposal to Ultratech," Adesh Gupta, Grasim's chief financial officer told reporters.

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Gupta said after board approval and court's sanctions, he expects the entire consolidation process to be completed in the next eight to ten months.

He said the proposed structure will allow the group flexibility to raise funds for future growth of its cement business.

"In the next five years, we may need to add 25 million tonnes of capacity in order to maintain our market share. This itself will require 150 billion rupees," he said.

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Meanwhile, Grasim will continue to boost its viscose staple fibre (VSF) business which currently contributes 23 percent to its revenues, the company said.

The firm is investing 10 billion rupees ($210 million) to set up a new VSF plant in western India to increase capacity by a quarter, the firm said in a statement.

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