Mumbai: For Kumar Mangalam Birla, 42, chairman of Grasim Industries Ltd and the $29.2 billion (Rs1.4 trillion) Aditya Birla Group, Saturday brought yet another defining moment.
Grasim’s directors met in the boardroom on the fifth floor of Mumbai’s Aditya Birla Centre to approve a proposal to separate the company’s cement business and merge it with wholly owned subsidiary Samruddhi Cement Ltd.
Cement push: Birla on Saturday told the board that the business needs more financial and strategic flexibility to tap the next stage of growth. Scott Eells / Bloomberg
“When we look back 10 years, this is clearly a transformation,” Birla, who took charge of the group at 28, told the board. “The cement business needs greater financial and strategic flexibility to tap the next stage of growth, while preserving the benefits of Grasim sponsorship.”
Birla has presided over a group that has seen its cement capacity shoot up from 3.5 million tonnes 11 years ago to around 49 million tonnes now, making it the biggest maker of the building material in the country, now seeing a revival in the real estate business. The group says it plans to add another 25 million tonnes in the next three-five years, to coincide with a planned increase in infrastructure spending.
Saturday’s meeting marked a key stage in the process of eventually consolidating the group’s cement operations under one entity—UltraTech Cement Ltd—exceeding the combined capacities of Holcim’s units Gujarat Ambuja Cements Ltd and ACC Ltd. That unification is expected in eight-nine months.
Grasim will control 65% of Samruddhi Cement, with the company’s shareholders owning the rest.
The cement push began in 1998, when Grasim took over the cement business of the erstwhile Indian Rayon and Industries Ltd. At the time, Birla had said, “Given its present size, the company’s cash flows and requirements of other businesses, Indian Rayon’s cement business would have been marginalized without adequate growth prospects.”
The move resolved the dilemma over which of the two—Indian Rayon or Grasim—would serve as the incubator for the cement business. With Grasim’s core viscose staple fibre business generating cash surpluses—Rs3,942 crore in the last eight years—the money could be used to fund the group’s move into its next big business: cement.
The rationale for the current restructuring is the same—to combine the cement business under UltraTech, a subsidiary of Grasim, says Adesh Gupta, Grasim’s chief financial officer. Gupta, who completed the Indian Rayon transaction and is one of the key forces behind the new restructuring, has been with the group for 30 years.
The eventual merger with UltraTech will create more headroom for future equity and allow the group to exceed the cement industry’s growth pace of 8-9% a year, says D. Muthukumaran, head, group corporate finance.