Orient Paper and Industries Ltd on Wednesday said it has decided to spin off its cement business and list it on the stock exchanges by April next year.
The firm plans to transfer the business to an unit Orient Cement Ltd, and Orient Paper shareholders will get one new share of the cement company for each share they own, the company said.
"The company has ambitious plans for its cement business and the demerger will provide an opportunity to shareholders to directly participate in the pure-play cement company," Chairman CK Birla said in a statement.
Kotak Investment Banking advised Orient Paper on the transaction.
Orient has a cement manufacturing capacity of 5 MTPA (million tonnes per annum) with a 50 MW power plant. Cement contributed about 53 per cent to its total sales in FY11.
The company is in the process of setting up a 3 MTPA greenfield project in southern Karnataka state at an investment of 17.5 billion rupees and expects it to commence production by mid-2014.
The firm plans to raise the funds via internal accruals as well as loans and said it was also looking at additional sites in India to expand cement capacity.
The cement sector has been hit by a rise in raw material costs including fuel prices, pet coke and coking coal. Lower realisations and dispatch among others are issues plaguing the industry, which is expected to hit the prospects of the sector in this quarter.
"The cement industry faces near medium term oversupply and input costs do increase concern. We firmly believe oversupply situation is a short term phase which will soon be overcome," M L Pachisia, Managing Director at Orient Paper told reporters.
The company is looking to expand cement capacity to 15 million tonnes over the next few years from 5 million tonnes now, he said.
Orient Paper, which also has business interests in paper and electrical products, reported a 73 per cent jump in June quarter net profit to 593.7 million rupees as net sales increased to 5.34 billion rupees from 4.4 billion rupees.
Orient Paper shares closed down 3.52 per cent at 61.75 rupees in a weak Mumbai market.