Shree Cement to buy 93% stake in UAE-based Union Cement for $305 million

Shree Cement has the option to take full control of the company’s shares, chief financial officer Subhash Jajoo said.

Union Cement, founded in 1972, has an annual production capacity of four million tonnes and operations in the Emirate of Ras Al-Khaimah.

As its plant is located close to the Saqr port, the company exports to other countries in the Gulf region and East Africa, Shree Cement said in a regulatory filing.

Half of the unit’s output is consumed locally and the other half exported.

This will be Shree Cement’s first venture outside India and its biggest acquisition ever. Locally, the company produces 29.3 million tonnes of cement a year.

The transaction is expected to be concluded in nine months, subject to approval from UAE regulatory bodies. Jajoo said Union Cement, which produces 3.3 million tonnes of clinker—the key ingredient for cement—was available at a “competitive price" of $75 per tonne of cement output. “Our competitors have acquired assets at higher prices of $110-120 per tonne," he added.

Shree Cement has a cash reserve of around Rs4,000 crore, according to Jajoo.

But the company hasn’t decided if it will pay for the acquisition entirely from its own coffers, he added.

For the next fiscal year, Shree Cement has budgeted for capital expenditure of Rs2,500 crore, over and above the UAE acquisition, said Jajoo. Most of the amount will be ploughed into existing units in India.

The company is looking to scale up its production capacity in India to 40 million tonnes within two years, he added.

Union Cement has a consistent track record, Shree Cement said in a statement. In 2016, it reported $153.4 million in revenue and an operating profit of $33.7 million, which translates into a high operating margin of 21.9%.

In the nine months till the end of September, the company’s operating profit was at $25.97 million on revenue of $120.27 million.

Shree Cement’s shares rose 0.19% to Rs19,511 on BSE in a flat market. The announcement of the acquisition was made after stock markets had closed. On Thursday, Shree Cement reported a 41.5% increase in December quarter net profit from a year earlier thanks to an expansion in margins. Net profit for the quarter was Rs333.33 crore, compared with Rs235.43 crore a year earlier. Revenue was Rs2,383.53 crore, up 7% from a year earlier.