Mumbai: India’s largest cement maker, UltraTech Cement Ltd, aims to aggressively cut its debt over the next two years to help prepare for more acquisitions.

UltraTech, controlled by billionaire Kumar Mangalam Birla, plans to prepay some loans through its internal cash accruals, according to chief financial officer Atul Daga. It targets to cut the ratio of its net debt to earnings before interest, taxes, depreciation and amortization to 1 time by 2020, from 2.3 times currently, Daga said in an interview Thursday in Mumbai.

The company is pushing ahead with further dealmaking, even as it challenges the outcome of Binani Cement Ltd’s sale after being bested by a rival bidder. UltraTech boosted its offer for insolvent Binani Cement to about Rs69 billion ($1.1 billion) after the bidding closed and later approached the National Company Law Tribunal with complaints on the transparency of the auction process.

“It is our pride," Daga said when asked why UltraTech was contesting the outcome. “Somebody is playing mischief. We will not tolerate that."

UltraTech is looking to purchase additional capacity in India, where it sees the most demand, according to Daga. It will look at more stressed cement assets being auctioned under India’s new bankruptcy law, as well as other companies that come up for sale, he said. UltraTech needs to maintain its market share in the growing Indian cement sector, Daga said.

‘Big shocker’

Binani Cement creditors earlier this month picked an offer from a consortium led by Dalmia Bharat Ltd, a domestic rival of UltraTech. The Dalmia Bharat bid, which had backing from Bain Capital Credit, was chosen as the best proposal and submitted to the NCLT for approval. UltraTech has since made its latest offer, valued at Rs72.7 billion including working capital commitments, directly to Binani Cement’s parent, conditional on the building material producer being taken out of insolvency proceedings.

Daga said UltraTech had expected to be called for further negotiations after submitting its initial offer. It had kept some money on the table to allow for further increases of its bid, but the resolution professional overseeing the sale made a decision based on the level of the bids that were submitted, he said.

“One fine day, we got an email that you are not the highest bidder," Daga said. “That was a big shocker for us."

UltraTech’s proposal may have won if the resolution professional overseeing the sale had not deemed the company less likely to get Indian antitrust approval for a deal, according to Daga. The region where Binani operates has 18 active cement producers and intense price competition, leaving little room for UltraTech to exercise any dominance of the market, he said.

“The whole bidding process was not transparent," Daga said.

New statute

UltraTech’s net debt to Ebitda ratio could rise to 2.6 times if it ends up winning control of Binani Cement, though that won’t change the company’s debt reduction goal, according to Daga. Representatives for Binani Cement’s resolution professional, Deloitte Touche Tohmatsu India, and Dalmia Bharat didn’t immediately respond to requests for comment.

Any acquirer of Binani Cement would boost its position in northern India as well as gain access to the company’s reserves of limestone, a key raw ingredient. UltraTech has a production capacity of 92.5 million metric tons, which will increase to 99.5 million metric tons after planned greenfield expansions, according to Daga. It has a 22% market share in the country currently.

The NCLT will next meet March 27 to consider the Binani Cement case and the grievances raised by UltraTech. India’s insolvency law is a new statute, with many eventualities left to be tested, said Mathew Antony, a managing partner at Aditya Consulting.

“The legal minds in UltraTech are exploring the possibilities of setting a precedent through this aggressive bidding," Antony said. Bloomberg

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