Kesoram's cement business demerger may be completed by December 2024

The cement business accounted for the bulk of Kesoram's revenue from operations. According to the FY24 annual report, revenue from cement was Rs 3,736.10 crore

The demerger of Kesoram Industries’ cement business into UltraTech Cement is expected to be completed by December 2024.

Kesoram, a BK Birla group entity, and UltraTech, led by his grandson Kumar Mangalam Birla, had announced an all-stock deal on November 30 last year. This entailed the B K Birla company demerging its cement business into India’s largest cement producer. 

P Radhakrishnan, whole-time director and chief executive officer (CEO) of Kesoram, said the scheme of arrangement had already been filed with the National Company Law Tribunal (NCLT) on May 20.

“I am hopeful that by December the demerger will be completed,” he said on the sidelines of Kesoram’s annual general meeting (AGM).

The cement business accounted for the bulk of Kesoram’s revenue from operations.

According to the FY24 annual report, revenue from cement was at Rs 3,736.10 crore. Rayon, transparent paper and chemical was at Rs 246.32 crore.

After the demerger of cement, Kesoram will be left with rayon, transparent paper and chemicals business.

Radhakrishnan said the company would decide on the next course of action for the business after the demerger.

He added, “We will do what is appropriate to create shareholder value.”

To continue and grow the business or exit, all options will be evaluated. However, to grow the business, it will have to deleverage. The business has a debt of around Rs 220 crore.

“If it is deleveraged, then we can grow the business. Equity infusion will be required,” Radhakrishnan said.

Once cement moves, the operating business of Kesoram will be under the subsidiary, Cygnet Industries.

Last year, the company had said that it was in discussion to bring in strategic investors including its technical partner, Futamura, to add value to the transparent paper business. Japan’s Futamura is a manufacturer of sustainable packaging film.

Radhakrishnan said the option of having Futamura as a strategic partner was still open.

In FY24, Kesoram Industries recorded earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 420.06 crore on a standalone basis compared to Rs 371.22 crore in FY23.

However, Rohit Shah, chief financial officer (CFO) of Kesoram, told shareholders that Ebitda for FY24 fell short of the finance cost of Rs 462 crore.

The problem, he said, was addressed in February 2024 by replacing high cost non-convertible debentures (NCDs) with term loans having an interest rate of 11.4 per cent.

The company was able to attract banks for financing after a gap of three years, Shah said.

The rationale for the demerger of cement was to assist in deleveraging the balance sheet of Kesoram.

Tuesday’s AGM was the first after the passing away of B K Birla’s daughter and chairman of the company Manjushree Khaitan in May 2024.

The company had informed the stock exchanges on June 12 that Satish Narain Jajoo, independent director, had been designated as non-executive chairman. The AGM was chaired by Jajoo.