STRATEGIC CEMENT SYMPHONY: ULTRATECH’S POTENTIAL MERGER WITH KESORAM INDUSTRIES

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Unveiling Tomorrow's Foundations: Kesoram and UltraTech Cement - Pioneering a New Era in Cement Excellence!

In a pivotal move set to reshape the Indian cement industry, the board of Kesoram Industries Ltd is gearing up to deliberate on innovative strategies to alleviate high-cost debt. Among the potential solutions lies a transformative proposal—an all-share deal with UltraTech Cement, India’s leading cement producer. Spearheading the charge is Kesoram, the flagship entity of the esteemed Basant Kumar Birla Group, under the astute leadership of Manjushree Khaitan, the daughter of the late B.K. Birla.

Should the board greenlight the deal, Kumar Mangalam Birla, the grandson affectionately known as B.K. Babu, could find himself at the helm of the family’s prized assets. Kumar Birla, the Chairman of the AV Birla Group, which encompasses UltraTech, is not just an influential figure but also a promoter shareholder in Kesoram. Pilani Investments and Industries Corporation Ltd and Century Textiles & Industries Ltd, entities under the purview of the Kumar Birla family, hold nearly 15 per cent in Kesoram, qualifying as prominent promoter groups.

This potential game-changing deal introduces a unique twist—UltraTech may opt to settle Kesoram’s dues by issuing fresh shares instead of deploying cash. Such a strategic move aims to prevent unnecessary strain on the balance sheet, ensuring a smoother financial transition. In return, Kesoram shareholders could find themselves holding UltraTech shares, marking a collaborative approach to financial consolidation.

As part of this proposed transaction, UltraTech could also undertake the responsibility of clearing the high-cost debt burden weighing down Kesoram’s balance sheet, particularly in the form of Non-Convertible Debentures (NCDs). The exact number of UltraTech shares allocated to Kesoram shareholders hinges on the enterprise valuation of the cement business, considering the existing debt of approximately Rs 1,700 crore. Among the alternatives being considered, asset sale and a potential rights issue are on the table, with Kumar-controlled entities subscribing to the promoters’ portion.

The Kesoram script has been on a remarkable ascent, surging by 65 per cent in the last month alone. This bullish trend, evidenced by the stock hitting the upper circuit on Tuesday and closing at Rs 126.19 on the BSE, underscores the market’s positive response to the prospect of transformative decisions. Cement, a key player in Kesoram’s revenue stream, contributed a substantial 98 per cent to its Rs 3,606 crore turnover in FY23, with the remaining share derived from rayon, transparent paper, and chemicals.

Despite Kesoram’s tumultuous financial history, marked by persistent losses, the Khaitan-led management, supported by nephew Kumar Mangalam, has been resilient in navigating crisis scenarios. Past restructuring efforts included selling the Haridwar tyre plant to JK Tyre in 2015 and subsequently demerging the Birla Tyre division into a separate listed entity. However, the debt burden persisted, leading to Birla Tyre succumbing to insolvency, eventually taken over by Himadri Speciality Chemicals.

In the aftermath of the COVID-19 pandemic, Kesoram faced an insurmountable debt challenge, prompting an innovative plan to avert default. The issuance of NCDs to financial institutions like Goldman Sachs and Edelweiss, carrying interest rates of 19-20 per cent, enabled the settlement of bank loans. The subsequent strategy involved gradually raising debt from Indian banks at lower rates to retire NCDs and control interest outflows. Despite improvements in the cement business’s performance with liquidity injection through NCDs, it proved insufficient for another round of refinancing, resulting in a finance cost of approximately Rs 422 crore in FY23.

The familial connection in Kesoram adds an intriguing dimension to this potential deal. While Manjushree Khaitan took the reins of Kesoram after her father’s demise, B.K. Birla had consistently envisioned a role for Kumar Birla in the flagship of his empire. The potential integration with UltraTech aligns with this vision, presenting an opportunity for Kumar Birla to consolidate his expansive cement business amid strong competition from the Adani Group, now owners of ACC and Ambuja. UltraTech’s colossal 135 million tonnes of cement capacity dwarfs Kesoram’s 10 million tonnes, emphasizing the potential for synergy in this strategic union.

In the dynamic landscape of corporate maneuvers, the proposed collaboration between Kesoram Industries and UltraTech Cement promises to be a transformative chapter. The convergence of expertise, resources, and strategic vision holds the potential to redefine the contours of India’s cement industry. As the board deliberates on the future trajectory, the market eagerly awaits the unveiling of a new chapter in the evolution of these industry stalwarts.

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