In a big-ticket, cross-border deal, Ultratech Cement Ltd, part of diversified Aditya Birla Group, is acquiring Dubai-based ETA Star Cement Company LLC for an enterprise valuation of Rs 1,700 crore.
Marking its foray into the Middle-East market, Ultratech will acquire management control of ETA Star Cement and its operations in United Arab Emirates (UAE), Bahrain and Bangladesh. All these assets carry an enterprise value of Rs 1,700 crore.
“The acquisition marks the entry of Aditya Birla Group's cement business into the Middle East. This is in line with our long-term strategy of expanding our global presence across businesses and consistent with our vision of taking India to the world,” Kumar Mangalam Birla, chairman, Aditya Birla Group, said in the statement.
The acquisition will be through Ultratech Cement Middle East Investments Ltd, a wholly-owned subsidiary of the company in the UAE, it said in a statement. The company plans to fund the acquisition through a mix of internal accruals and debt. It is targeting to complete the transaction by the end of the June quarter.
Ultratech cement currently exports cement and clinkers to the Middle-East. With this acquisition, it will gain access to the markets in the Middle East and the adjoining areas.
The acquisition of ETA Star Cement Company will derisk, albeit partly, Ultratech from the domestic commodity price movement. A huge expansion in capacity is likely to soften cement prices in the short-medium term and an acquisition in overseas markets will help it to overcome this partly.
Ultratech is already on the way to become the single largest cement firm in the country after the AV Birla Group decided to merge its cement firms under one umbrella to consolidate operations. The Dubai acquisition will allow Ultratech to further push up its total cement capacity to over 52 million tonnes.
Besides entry into the Middle East and neighbouring Bangladesh, it could also become a route to enter the African market which has been much fancied as the next big emerging markets story for global companies. As per news reports, Star Cement had plans to expand its capacity to 8 million tonnes in three countries—Sudan, Bahrain and Bangladesh by 2015.
This could also mark as initial steps by Ultratech taking on the might of Cemex, Holcim and Lafarge to emerge as one of the top global cement producers.
The deal also comes at a time when the cement sector is seeing a flurry of activity. Besides big capacity expansion plans of all major players, the sector has seen French firm Vicat acquire majority stake in Bharathi Cement and Cemex eye privately held Penna Cement.
ETA Star Cement has 2.3 MTPA (million tonnes per annum) capacity clinkerisation plant and 2.1 MTPA cement grinding capacity in the UAE, with another 0.4 MTPA and 0.5 MTPA of cement grinding capacity in Bahrain and Bangladesh, respectively.
Ultratech currently has production facilities spread across five integrated plants, five grinding units, and three terminals across India and Sri Lanka. The company is targeting to become India's biggest cement producer with 52 million tonnes, with this acquisition as well as the takeover of Samruddhi Cement, the cement operations of Grasim Industries Ltd, a diversified group company. Ultratech is awaiting the court approval for the proposed take over.
The shares of Ultratech Cement were traded at Rs 1,018.60, down by Rs 55.80 or 5.19% at 4:10 pm in the BSE today. The net sales and net profit of the company were Rs 7,050 crore and Rs 1,093 crore, respectively in the financial year ended by March 31, 2010.