Dalmia Cement (Bharat) had previously announced that it would demerge its cement, thermal power and certain other businesses into Dalmia Bharat Enterprises (DBE), in a bid to create entities that are more sharply focused. The previous Dalmia Cement (Bharat) would house the sugar business with a crushing capacity of 22 000 tpd, coupled with distillery and co-generation business.
DBE is a wholly-owned subsidiary of Dalmia Cement (Bharat). As per the restructuring announcement, the cement and thermal power undertaking will be demerged into two wholly-owned subsidiaries, Avnija Properties and DCB Power Ventures respectively. Avnija Properties will include 9 million t of cement capacity of the previous Dalmia Cement (Bharat) and focused in the South.
In addition, the 45% stake held by Dalmia Cement (Bharat) in OCL India, with a cement capacity of 5.3 million t, would be demerged and transferred to DBE and its wholly-owned subsidiaries. Shareholders of Dalmia Cement (Bharat) would receive one share in DBE for every share held, once all the regulatory approvals have been received.
However, as per the restructuring announcement, it would make DBE a holding company for the cement and power business, and given the cross-holding between various entities, it may make it difficult for investors to get a full picture of DBE and its various operating subsidiaries. In India, holding companies typically trade at a 50-70% discount to the market value of their investment and there is nothing to believe it may not happen in the case of DBE.
Given the different operating dynamics and fund requirements of businesses like sugar and cement, this move appears logical to better focused entities. Also, a more focused entity would find it easier to raise funds and this is crucial at a time when additional greenfield cement capacities of 10 million t at a cost of nearly Rs.4500 crore are planned to be implemented in phases over the next few years.
Read the article online at: https://www.worldcement.com/asia-pacific-rim/25032010/dalmia_cement_to_demerge_cement_and_thermal_power/