The Aditya Birla Group on Saturday announced that it would de-merge the cement business of flagship Grasim Industries into a company named ‘Samruddhi’. The new company, formed as a holding concern, will absorb the demerged business as a precursor to a merger with UltraTech, the Group’s cement-making company. Grasim’s holding in UltraTech will not be transferred.
Adesh Gupta, chief financial officer of Grasim, is one of the three members on the Samruddhi board. The new company will issue one equity share to Grasim shareholders for every Grasim share they hold. On completion of the demerger, Grasim shareholders will directly own 35 per cent of Samruddhi, and Grasim’s stake will be diluted to 65 per cent, the company said in a statement.
The potential merger would also open up new avenues for raising capital. The company is committed to increase capacity, and would explore all avenues to raise capital, officials said.
In the next five years, the company may need to add 25 million tonnes of capacity in order to maintain its market share. This will require investments of Rs 15,000 crore.
“The new company would have enough internal cash, and there are many opportunities to raise funds, including using the equity route,” said Vallabh Bhansali, chairman, Enam Securities, advisor to the demerger.
“This is an intermediate step and eventually the total cement business will be consolidated in a single firm, once Samruddhi makes a proposal to Ultratech. We expect the total process to take eight to ten months,” Adesh Gupta, Grasim's chief financial officer said. The two Aditya Birla Group companies together have a market share of 19 per cent at present, which will be consolidated under one banner once the merger is complete.
Grasim will continue to hold a major interest in form of equity in the new consolidated cement business. In order to expand its other businesses, it will also invest Rs 1000 crore in a new viscose staple fibre (VSF) factory, which will increase the company's existing capacity by 25 per cent.