The acquisition of 4.8 mtpa cement unit in Gujarat is expected to further bolster the fortunes of the Aditya Birla Group company's UltraTech Cement, says SHRIYAL SETHUMADHAVAN.
Kumar Mangalam Birla can permit himself a larger smile than he normally allows himself. Eighteen years after his ascension to the helm of the Aditya Birla Group Companies and notwithstanding the current economic crisis, which has seen the fall of the rupee his cement firm UltraTech Cement, thanks to the acquisition of Jaypee Cement's 4.8 million tonne per annum (mtpa) plant for Rs 3,800 crore in Gujarat, is set to change industry production equations.
UltraTech's domestic capacity post the deal is expected to rise to 59 mtpa from the current 54, and with a spate of projects underway, the company would be looking to post 70 mtpa by 2015. That would not just be a shot in the company's arm, but would assure it of being in a position to move ahead of its immediate rival Holcim which, from 57 mtpa at present, is expected to raise its annual capacity to 65 mtpa.
It is easy to see why the Aditya Birla Group Chairman Kumar Mangalam Birla is gung ho about the acquisition. Says he, -ôThe company expects to derive synergy benefits of Rs 30-40 crore per annum from this acquisition. Further, we would benefit from the tax advantage on carried forward business losses and unabsorbed depreciation of the Jaypee's plants.
Assuredly getting to this position has been extremely hard work for the minders of UltraTech. Witness this: around 1996, the group's cement capacity was a mere 3.5 mtpa dramatically short of ACC and Ambuja Cements' 11.5 mtpa. What is admirable is that the Birla Group of Companies have not just caught up with the competition but have grown revenues from $2 billion to $40 billion during this period. By all accounts the company is on a high.
With capacities built in all zones except Gujarat, the company's recent approval of the acquisition of the Gujarat cement unit of Jaypee Cement Corporation seems to have filled the void. From efficient inter plant clinker transfer to better access to the state's market and increase in cost efficient coastal movement the acquisition is advantage UltraTech.
The acquisition is by way of a demerger through a scheme of arrangement under the Companies Act, comprising an integrated cement unit at Sewagram in Kutch and grinding unit at Wanakbori, near Ahmedabad. With the company's Gujarat plant presently operating at 95 per cent it was decided to acquire another unit to enhance production capacity in the state to serve local, coastal and export markets. Apart from meeting the company's need to enhance capacity in Gujarat, the transaction brings along with it several benefits.
Kailash Birla, CFO, UltraTech Cement, is led to say, 'The transaction will also help us realise logistics gains and be value accretive in the medium term.' Adds OP Puranmalka, Whole Time Director, UltraTech Cement, 'Besides giving us a stronger production base in Gujarat to serve the local market it will also bolster our coastal footprint enabling us to cater to other regions of India and exports,' The Gujarat plant has an install ed clinker capacity of 3.6 mtpa (2 x 5,500 TPD) and grinding capacity of 4.8 mtpa (2 x 2.4 mtpa) at two locations in Gujarat.
These plants also have 100 per cent captive power capability of 57.5 MW. It has 30 MW of GD set power, jetty with 2,500 dwt barges for sea transportation of clinker and coal movement, and a cement bag manufacturing unit for 5 mtpa. The plant has limestone reserves for 90 years and has a huge land bank of 5,470 hectare, which can help UltraTech double the plant's capacity in future through brownfield expansions.
Among the projects commissioned during the year were the clinkerisation plant of 3.30 MMTPA at Ultratech's unit in Rawan, Chhattisgarh resulting in an increase in clinker capacity to 39.50 MMTPA. After the commissioning of the cement grinding unit at Hotgi, Maharashtra with capacity of 1.55 MMTPA, the upgradation of grinding capacity at Gujarat Cement Works by 0.60 MMTPA, the company's cement capacity has increased from 48.75 MMTPA to 50.90 MMTPA. Clinker production remained almost flat at the previous year levels, while cement production increased marginally by 2 per cent from 39.43 MMT to 40.13 MMT. Capacity utilisation was at 84 per cent. White cement production increased by 3 per cent from 5.53 LMT to 5.73 LMT. The company commissioned a wall care putty plant of 4.0 LMT at Katni, Madhya Pradesh which will further support in enhancing its footprint in the product segment.
UltraTech is India's largest exporter of cement clinker spanning export markets in countries across the Indian Ocean, Africa, Europe and the Middle East. The company exports over 2.5 mtpa, which is about 30 per cent of the country's total exports. It has also been associated with some of India's largest infrastructural projects.
Finance and future
For FY2012-13, the Company's impressivenet turnover stood at Rs 20,018 crore up by 10 per cent, vis-a-vis Rs 18,158 crore in the previous year. It attained net profit of Rs 2,655 crore as against Rs 2,446 crore the previous year. 'We have blueprinted an audacious growth plan,' trills Kumar Mangalam Birla. 'By 2015, our goal is to scale our cement capacity to 64.45 mtpa from the current 53.90 mtpa. We will be able to consolidate our leadership position in the cement sector, backed by our robust capex plans.Given the company's single minded focus on growth both top-line and bottom-line I do believe that we will scale new peaks.' All the more reason for him to smile more.
Research Analyst-Cement & FMCG, Angel Broking
'The impact of the recent acquisition of Jaypee's cement unit in Gujarat on the UltraTech's financials will be visible over the next three years. Gujarat is a fast growing market, and initially, the company was not able to keep up with the demand. UltraTech will now enjoy a large share in the state's market up to 65-70 per cent. This acquisition has positioned the company in a way that it can serve the market better.'