Ultra Tech to buy Century Textiles’ cement business

Aditya Birla group company UltraTech Cement has said it will acquire the cement business of B K Birla firm Century Textiles through a shareswap deal.

Under the arrangement, Kumar Mangalam Birla-led UltraTech will merge Century Textiles’ 13.4 million cement capacity with itself, taking UltraTech’s capacity to 105.9 million tonnes per annum (mtpa) in the domestic market, and consolidate its leadership position in the Indian cement industry.

After completing the deal, UltraTech will have a total capacity of 109.9 million tonnes (mt) making it the third-largest cement player globally, excluding China.

Century Textiles will demerge its cement business, which accounts for 53.2 per cent of its revenue.

UltraTech will give Century Textiles shareholders one share for every eight shares held.

According to B K Birla’s succession plan, Kumar Mangalam Birla will get control of Century Textiles, in which he was appointed vice-chairman in 2015.

UltraTech will take over a debt of ~30 billion from Century Textiles.

UltraTech’s equity will be diluted by about 5 per cent to ~2.89 billion.

Century Textiles’ cement business consists of three integrated units — one each in Madhya Pradesh, Chhattisgarh, and Maharashtra — with a capacity of 11.4 mtpa, and a grinding unit in West Bengal of 2 mt, while an additional capacity of 1.2 mt is pending statutory clearance.

UltraTech will gain leadership position in central and east Indian markets, besides extending its footprint in the west and south.

K K Maheshwari, managing director, UltraTech Cement, said: “Century Textiles’ cement assets fit very well into our plans. With one more unit in the central zone and another 4.4 mt capacity in the east, we become the largest player in both regions.”

Maheshwari said the Competition Commission of India’s approval should not be difficult because cement was a fragmented industry and even after the acquisition, UltraTech’s regional capacity share would be less than 25 per cent.

The enterprise value works out to ~86.21 billion ($106 a tonne), which appears reasonable, say analysts. UltraTech’s previous acquisition for Jaiprakash Associates’ cement assets was at around $120 a tonne.

Cement accounted for 53.2 per cent of Century Textiles’ revenue of ~43.06 billion and had earnings before interest, tax, depreciation and amortisation (Ebitda) of ~4.92 billion excluding non-recurring items.

This translates into Ebitda per tonne of ~367, which is much lower than UltraTech’s ~1,000 per tonne. Century Textiles said its plants required significant capital to upgrade, modernise and grow these businesses and its leverage and cash flow profile constrained growth.

UltraTech will invest in the plants and turn them around, bringing them at par with its own profitability. There would be synergies in procurement, distribution, branding, and logistics too.

Binod Modi, analyst at Reliance Securities, said Century Textiles sold 3.3 mt of cement in the March quarter and could easily sell up to 12 mt annually. “If UltraTech can take its Ebitda per tonne to ~600, it can potentially be earnings accretive from the first day of operation,” he added.

Analysts say UltraTech has a track record of turning around cement capacities after acquisition and give the example of Jaiprakash Associates’ cement capacity of 21.2 mt, which it acquired in July 2017. Capacity utilisation in the March 2018 quarter at 75 per cent was higher than analysts’ expectations of 70 per cent.