Grasim set to become largest cement company

By Pradeep Rane | 09 Jun 2004

The Aditya Birla group company, Grasim is set become the largest cement company in the country with its bid for Ultra Tech Cemco, the demerged cement business of Larsen & Toubro. The company has made an open offer for the cement unit.

The company is expected to take management control of Cemco soon. It has made the open offer price at Rs345 per share and offer is expected to get good response from shareholders. Also, the in-principle approval of the financial institutions which hold 37 per cent in L&T, adds to the comfort level. Grasim's open offer will conclude on June 21 and Cemco is unlikely to be list before June 21. The acquisition of additional 30 per cent through the open offer will facilitate the transfer of management control to Grasim and the synergistic gains estimated at nearly 10 per cent of FY04 earnings.

The company currently has 31m MT of capacity under its control.

With the continued strong cash generation, Grasim has funded this Rs 22 billion acquisition through internal accruals. The required cash for the open offer is already deposited with the escrow account.

The company will be benefiting from the rising cement prices (up 13 per cent YoY) and higher volume growth but it will also gain from the synergistic cost savings (nearly 10per cent of FY04 profits).

Cement prices have continued its uptrend post the elections. Prices
in the southern part of the country have moved up by 6 per cent and
in the western part of the country by 3 per cent over the last 1 month. The current national average prices of Rs152 / 50 kg bag is up 7 per cent.

The demand for VSF continues to be strong, evident in the successful implementation of a 5 per cent hike in prices in April'04. The capacity utilisation of the VSF plant was in excess of 100per cent in FY04. With the good monsoon of 2003, early beginning in 2004 and the increase in height of reservoir level indicates that the VSF plant may not be closed during 2004 as against a closure for 40 days during 2003, supporting the strong volume growth more than offsetting the impact of rising pulp prices.