Ultratech plans share swap to takeover Century's cement arm

In a bid to take on competition from Holcim-Lafarge combined entity, the Aditya Birla group’s Ultratech Cement is looking at a share swap proposal to take over the cement division of BK Birla-owned Century Textiles at a valuation of Rs 10,500 crore.   

The transaction, if it gets the approval of board of both companies, will help Ultratech to retain its number one position in the cement industry as it will add 13 million tonnes per annum to its present 65 mtpa capacity. The company is targeting 100 mtpa capacity to take on competition from Swiss major Holcim.  Post its Euro 42 billion merger with Lafarge, Holcim's capacity in India will increase to 71 mtpa though the Competition Commission of India is likely to ask the European companies to sell some assets in Eastern part of India.

When contacted, a Aditya Birla group spokesperson said “there is no such proposal before the board.” In a communication to the stock exchanges on Tuesday, Century Textiles said the news to hive off its cement division is “not true.” 

Century Textiles is managed by Kumar Mangalam Birla, who is a director on the board of the company while the company’s board is chaired by his grandfather B K Birla. The consolidation will help both Ultratech and Century to cut costs and synergise their operations. It will also help Ultratech to increase capacity without letting go of its cash. Bankers say Axis Capital is working on a proposal which aims to dilute Ultratech’s equity by 12 per cent after the share swap deal.  Post the share swap deal, the deal may see Birla family’s stake coming down in Ultratech from 61.69% to 60.31%. The Birla family owns 40.23 per cent stake in Century Textiles (see chart). But post its warrant conversion, the Birla family stake will cross 50% in Century and the family will receive half of the Ultratech shares offered in the share swap.

On Tuesday, Century Textiles was trading at Rs 550 a share while Ultratech was trading at Rs 2,821 a share.  

Bankers say if the deal is cleared by the boards, it will immediately give a boost to Century as it will receive good valuation for its cement division which is almost double of its current market capitalization of Rs 5,122 crore. The company may retain its other businesses including textiles, rayon and paper. 

Apart from acquiring capacities, Ultratech is also investing in its own capacity. During the December quarter, the board approved the acquisition of the cement business of Jaiprakash Associates in Madhya Pradesh with capacity of 4.9 million tonnes at an estimated EV of $135 a tonne on extended capacity. With this new cement capacity along with  Jaypee unit at Madhya Pradesh taken over Rs 5,400 crore last year, Ultratech’s capacity has reached 65 million tonnes - a tad lower than its competitor Holcim-Lafarge.

Further, with the Rs 10,000 crore expansion projects under execution and excluding Century’s cement capacity, the total capacity of Ultratech is set to increase 18 per cent to 71 million tonnes by fiscal 16 while the industry capacity is expected to grow at a compounded average growth rate of 5% over the next three years. This, in turn, would help the company to further gain its leadership position, said an analyst with ICICI Securities.