India’s leading cement producer, UltraTech, is considering a potential takeover of Kesoram Industries, a cement maker and the flagship company of the Basant Kumar Birla Group. The board of Kesoram Industries is set to meet to explore options for repaying high-cost debt, with an all-share deal with UltraTech Cement being one of the possibilities.
Kesoram, led by Manjushree Khaitan, the daughter of late B.K. Birla, may see a strategic shift if the board approves the deal. Kumar Mangalam Birla, the grandson of B.K. Birla, could take command of the family’s interests through this transaction. Kumar Birla, the chairman of the AV Birla Group, to which UltraTech belongs, is also a promoter shareholder in Kesoram.
Entities controlled by the Kumar Birla family, including Pilani Investments and Industries Corporation Ltd and Century Textiles & Industries Ltd, hold close to 15 percent in Kesoram and are qualified as promoter groups.
If approved, the deal might involve UltraTech issuing fresh shares instead of cash to acquire Kesoram’s assets, potentially avoiding unnecessary strain on the balance sheet. Kesoram shareholders would then receive UltraTech shares as part of the deal. Additionally, UltraTech is expected to pay off the high-cost debt on Kesoram’s balance sheet as part of the transaction.
The number of UltraTech shares allocated to Kesoram shareholders would depend on the enterprise valuation of Kesoram’s cement business after considering its debt of around Rs 1,700 crore. Another option under consideration is a rights issue, where Kumar-controlled entities would subscribe to the promoters’ part.
Kesoram Industries has faced financial challenges in the past, despite restructuring efforts. The company, which saw a 65 percent increase in its stock price in the last month, has a significant portion of its turnover coming from the cement business. The management’s innovative plan involves issuing Non-Convertible Debentures (NCDs) to raise funds and control interest outgo.
The potential deal with UltraTech would allow Kumar Birla to consolidate his cement business, especially in the face of competition from the Adani Group, the new owners of ACC and Ambuja. UltraTech, with about 135 million tonnes of cement capacity, significantly surpasses Kesoram’s 10 million tonnes. If the deal materializes, it could fulfill the late B.K. Birla’s vision of Kumar Birla eventually inheriting or jointly managing Kesoram with Khaitan.