Grasim UltraTech UPDATE

Aditya Birla group company UltraTech will meet tomorrow to consider a proposal from Samruddhi Cement to merge the cement business of group with itself.

Aditya Birla group , which had acquired UltraTech from engineering giant L&T in 2004, had planned to hive-off Grasim cement into Samruddhi, a wholly owned subsidiary of Grasim Industries.

The demerged entity would be listed and then merged with UltraTech. In a filing to the Bombay Stock Exchange (BSE) UltraTech Cement said “it has received a consolidation proposal from Samruddhi Cement Ltd, a wholly owned subsidiary of Grasim Industries.”

Post-merger (Samruddhi and UltraTech), Grasim’s holding in the consolidated entity would be somewhere between 55-65 per cent. Grasim shareholders would hold 35 per cent in Samruddhi post demerger.

The board’s decision to demerge the cement business was unanimous. This also includes the LIC nominee on the board. But now LIC is yet to give its approval to the proposal.

They seek finer details of this entire process and proposal. LIC has asked Grasim to make detailed presentation of the entire process. The key contention is that they want to look at whether it is in the interest of shareholders and most importantly smaller shareholders is what we understand from sources.

Grasim is going to make a presentation to LIC during this week. We must not forget that, LIC owns 12.39% stake in Grasim and has a board seat in Grasim.

Karvy Stock Broking’s research report says…..
“Grasim Industries has proposed to restructure its cement business by transferring its cement business to Samruddhi Cement Ltd. (SCL), and eventually merging it with Ultratech Cement Ltd (UTCL). Post merger the Grasim’s significant value would be contributed by subsidiaries and investments. Hence we believe the discount for holding company would increase and subsequently we have revised our target price downward from Rs 2,303 to Rs 2,092 and maintain underperformer rating on the
stock,”

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(Download the detailed Update on Grasim Industries)