Change in Binani brandname, quality upgrade spur UltraTech turnaround

The last part of the series on the Insolvency and Bankruptcy Code takes a look at how Ultratech's acquisition of Binani helped it become North India's biggest cement firm by capacity

The acquisition of Binani Cement by Aditya Birla group company UltraTech is touted to be one of the few success stories post the Insolvency and Bankruptcy Code (IBC) regime. 

The acquisition helped UltraTech become North India’s biggest cement company by capacity with a 26 per cent market share post-acquisition.

UltraTech expanded its cement capacity to 120 million tonnes by buying Century Textiles, Binani Cement and Jaiprakash (JP) Associates in the last two years. It plans to add another 34 million tonnes of capacity by March 2021.  

The acquisition of Binani Cement in 2018 was not easy for the Birla group, which had to battle its rival bidder in the Supreme Court after making an offer of Rs 7,950 crore to banks. 

Binani is one of the few cases where banks have not taken a haircut as compared to other IBC cases.

The Birla group was pitted against Ajay Piramal’s stressed asset fund which had tied up with another formidable player Dalmia Bharat to bid for Binani. 

A last minute higher bid by UltraTech, which tied up with former promoters of the company, Braj Binani, saw UltraTech winning the race. On November 18, 2018, the Supreme Court finally cleared the takeover after Dalmia, which made an offer of Rs 6,932 crore, objected to the late bid by UltraTech.

Since then, the UltraTech management’s top priority was to consolidate Binani’s operations with itself. In December 2018, the Birla group changed Binani Cement’s name to Nathdwara Cement and upgraded the quality.

“At JP, we took about 52 days (to change the brand) and in Binani, we took about 40-odd days for changing the brand because we have to produce cement of a particular quality and strength and test it. If I have to test for 28 days, then I have to wait for 28 days,” a company official told investors recently. UltraTech also increased Binani’s capacity utilisation to about 60 per cent, said insiders. With the change in brand name, the company also plans to increase the price of cement produced from the subsidiary.

“The fastest integration of these assets is one of the finest examples of UltraTech’s capability of turning around and integrating the acquisition with UltraTech standards. Nathdwara Cement remained PAT (profit after tax) accretive in this otherwise weak quarter,” said Atul Daga, whole-time director and chief financial officer at Ultratech, in an investor call.

“When a question was asked why we paid such a high price (for the acquisition), I said we have a longer-term plan. By disposing of non-core assets, we will realise cash, which will help reduce the overall cost of acquisition. And when North India is right for expansion, we will expand at Nathdwara,” he said. He added, “The cost of expansion will be ridiculously low. Liquidation of non-core assets and expansion by way of brownfield capacity growth would bring our overall acquisition cost down.”

As the loans of Binani Cement was transferred to UltraTech, the interest cost also came down as UltraTech enjoys better credit rating, officials said.

Debt overhang?

With a series of acquisitions, the net debt of UltraTech, however, is showing signs of going up. As a result, in the first half of the current financial year, its finance cost was up 27 per cent and revenue grew 12 per cent compared to the same period last financial year. 

Earnings, before depreciation, interest, depreciation, tax and amortisation (EBITDA) was up 55 per cent in the first half of the current financial year compared to the same period last financial year.  

According to JP Morgan’s analysts, net debt of the company increased to Rs 20,600 crore as on September quarter. It was up by Rs 2,000 crore mainly due to addition of Rs 3,000 crore after Century Cement arm’s acquisition. 

“Adjusted for that, UltraTech seems to have generated Rs 1,000 crore of free cash flows even in a seasonally weak quarter and EBITDA to cash generation has been healthy. According to the company, leverage ratios (net debt to EBITDA of two times) are near comfortable levels. It is set to divest non-core assets worth Rs 1,000 crore,” it said.

As UltraTech adds capacity via acquisition, it will have to take care of the rising debt, said analysts.
 

Series concludes