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UltraTech Cement to purchase 80% of Star Cement

World Cement,

Reports from India indicate that UltraTech Cement Ltd, a subsidiary of Aditya Birla group, will purchase around an 80% stake in Dubai’s ETA Star group-owned Star Cement Co. Llc. for an enterprise value of US$ 380 million (Rs 1754 crore).

It is understood that the purchase will be made through UltraTech Cement Middle East Investments Ltd, a wholly owned subsidiary of UltraTech Cement. The enterprise value is the market value of the entire business, including debt.

 Adesh Gupta, a whole-time director and chief financial officer at Grasim Industries Ltd, which controls 60% of UltraTech Cement, said on Monday 2 August that “It will be more than 51% (stake), it will be very high stake. It will give an exit route for the ETA (group),”

The remaining stake in Star Cement will be held by the local partner with whom ETA had built cement plants. The acquisition is set for completion later this week. The deal will give the US$ 30 billion Birla group direct access to the West Asian market, until now served through exports, Gupta said. “We used to export more than 3 lakh t of clinker to the UAE market. So (now), instead of exporting clinker from India we have our own plant.”

“UltraTech has gone there for the long-term and they will save freight costs because they no longer have to export clinker to that market,” said Rupesh Sankhe, an analyst at Mumbai-based brokerage Angel Broking Ltd.

 UltraTech is also planning a 15MW coal-fired power plant in West Asia at a cost of Rs 5 crore per MW to manufacture cement at cheaper cost.

The United Arab Emirates (UAE) cement market has a total capacity of 30-35 million t, but demand slackened after a real estate slowdown hit Dubai last year. Star Cement has an annual capacity of 3.2 million t.

The Aditya Birla group has already demerged Grasim’s cement business into a newly listed subsidiary Samruddhi Ltd, which in turn will be merged with UltraTech. Grasim currently has Rs 2500 cash on its books.

Adesh Gupta declined to say how the company would use the cash but said it will invest Rs 1000 crore by fiscal 2013 to more than double its capacity in viscose staple fibre, which is used to make fabric and garments, to 150 000 t in Gujarat.

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