Kesoram’s Cement Business Demerger into UltraTech Cements by December

Kumar Mangalam Birla’s UltraTech and the BK Birla group’s Kesoram revealed an all-stock deal on November 30th last year. As a result, the B.K. Birla Company became the biggest cement manufacturer in India after demerging its cement division.  The deal was seen as a strategic move by both companies, with Kesoram looking to streamline its operations and focus on Cygnet, which is going to replace the plastic with a biodegradable alternative paper, while UltraTech aimed to strengthen its position in the highly competitive cement industry. The merger would also allow UltraTech to expand its market presence and increase its production capacity, making it a dominant player in the cement sector.  The transaction was expected to create significant value for both companies’ shareholders, benefiting customers and employees. It was seen as a win-win situation for all parties involved, with the potential to drive growth and profitability for both Kesoram and UltraTech.

Kesoram shareholders get 1 share of UltraTech Cement:

In exchange for every 52 shares of Kesoram Cement, stakeholders will receive 1 share of UltraTech Cement. The approval for this was granted by both company boards on November 30, 2023.

Kesoram’s next plan to make Rs 1000 crore from Cygnet:

Kesoram’s 90% source of income is only through the cement company, which is sold to UltraTech Cement for Rs. 7600 crores, but after this demerger is complete in December 2024, Kesoram will fully focus on the transparent paper and rayon business under the subsidiary company Cygnet, which reported Rs. 246.4 crore turnover in FY24 and a loss of Rs. 67.61 crore. Kesoram has partnered with Futamura of Japan for strategic investment in biodegradable cellulose paper, which is currently aimed at retail use and can then be used for industrial packaging as a part of the Futamura global chain. P. Radhakrishnan, full-time director & CEO of Kasoram,  said that they require a fund of Rs 45–60 crore for Cygnet, and after that,  they could make Rs. 1000 crore in business in the next few years. As a standalone operation, the cement industry reported a turnover of Rs. 3,783.54 crore and a loss of Rs. 331.67 crore as compared to the Cygnet.

Ultratech’s (market leader) plan:

Ultratech is India’s largest cement producer and is in the process of further consolidating its position in the wake of Adani Cement’s meteoric rise. On June 27, UltraTech acquired a 22.8 percent stake in Chennai-based India Cements from Radhakrishnan Damani and his family. Kesoram demerger added 7 million metric tons (mt) of cement production for Ultratech cement.

Conclusion: Overall, the demerger is expected to result in significant opportunities for both Kesoram Industries and UltraTech Cement, laying the foundation for a brighter future for UltraTech in the cement industry.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions