Mumbai: Aditya Birla Group, India’s largest cement maker, is set to acquire a 51% stake in Dubai-based Star Cement Co. Llc for an undisclosed sum, two people familiar with the development said.
Star Cement owns cement plants in Dubai, Sudan, Bangladesh and Bahrain with a total capacity of 3.8 million tonnes.
The $24.5 billion (Rs1.08 trillion) diversified Indian conglomerate with interests ranging from aluminium to mobile services will acquire majority control of the Dubai-based company through its cement company UltraTech Cement Ltd, which plans to absorb Grasim Industries Ltd’s cement business. The group is awaiting a court nod for the merger.
Star Cement and UltraTech have agreed to enter into an agreement for the deal and lawyers are working on this, one of the two persons said.
Officials of the Dubai firm did not respond to phone calls and email queries. The Birla group spokeswoman declined to comment on the development.
The buy will allow the Kumar Mangalam Birla-controlled conglomerate to access growing markets in Bangladesh, Bahrain and Sudan. It will ferry clinker, the main raw material for making cement, from India, and grind it into the building material to sell in the UAE market.
The Birla group recently hired Jose Domene, former chief executive officer who managed the international operations of Mexico-based Cemex, S.A.B. de C.V., to benchmark its Indian cement plants against international ones.
“We want our cement companies to do things differently, benchmarked to global companies in energy savings, sourcing raw materials and marketing the product,” Santrupt Misra, a director of Birla Management Corp., the group’s apex think tank that decides on business strategies, told Mint over the phone last week.
Shares of UltraTech on Tuesday closed 0.51% lower at Rs1,092.20 on the Bombay Stock Exchange in line with the benchmark index Sensex, which fell 0.31% to 17,690.
Star Cement, a part of ETA group, one of Dubai’s largest conglomerates that has interests from real estate to trading, had wanted to expand its capacity to 8 million tonnes in three countries—Sudan, Bahrain and Bangladesh—in next five years.
Currently, it has a 2.3 million tonne capacity through two plants in the UAE along with 0.4 million tonne in Bahrain and 0.6 million tonne in Bangladesh. The company’s bulk cement terminal in Sudan has a 0.5 million tonne capacity, according to the company’s website.
The Indian cement industry is expected to see a lot of churn in 2010, with large firms losing market share to smaller regional companies and margins coming under pressure, Fitch Ratings India Pvt. Ltd said in a report in January 2010.
Domestic cement makers are likely to add 50 million tonnes of manufacturing capacity this year and take the nation’s installed capacity to 300 mt, the report said.
Analysts say a significant amount of the additional capacity will flow from factories located in southern India, owned by smaller firms with annual capacities of two-three million tonnes.
Smaller companies will control at least 51% of the market by the end of 2010, up from 40% in March 2009, according to Fitch analyst Himanshu Nayyar.
The Aditya Birla group has already announced that it will invest up to Rs16,000 crore in the cement business over the next five years to add 25 million tonnes of capacity and maintain its current market share of 19%.
It is also merging UltraTech and Samruddhi, a newly created cement subsidiary, which will make the group’s cement company the largest cement producer in the whole country, with 49 million tonnes in capacity.
ETA group which had interests in aviation in India recently sold its scheduled licence to the Chennai-based Sun Networks Ltd. It recently invested in Star Health Insurance.