Grasim set to become largest cement company
By Pradeep Rane | 09 Jun 2004
The
company is expected to take management control of Cemco
soon. It has made the open offer price at Rs345 per share
and offer is expected to get good response from shareholders.
Also, the in-principle approval of the financial institutions
which hold 37 per cent in L&T, adds to the comfort
level. Grasim's open offer will conclude on June 21 and
Cemco is unlikely to be list before June 21. The acquisition
of additional 30 per cent through the open offer will
facilitate the transfer of management control to Grasim
and the synergistic gains estimated at nearly 10 per cent
of FY04 earnings.
The company currently has 31m MT of capacity under its
control.
With the continued strong cash generation, Grasim has
funded this Rs 22 billion acquisition through internal
accruals. The required cash for the open offer is already
deposited with the escrow account.
The company will be benefiting from the rising cement
prices (up 13 per cent YoY) and higher volume growth but
it will also gain from the synergistic cost savings (nearly
10per cent of FY04 profits).
Cement
prices have continued its uptrend post the elections.
Prices
in the southern part of the country have moved up by 6
per cent and
in the western part of the country by 3 per cent over
the last 1 month. The current national average prices
of Rs152 / 50 kg bag is up 7 per cent.
The demand for VSF continues to be strong, evident in
the successful implementation of a 5 per cent hike in
prices in April'04. The capacity utilisation of the VSF
plant was in excess of 100per cent in FY04. With the good
monsoon of 2003, early beginning in 2004 and the increase
in height of reservoir level indicates that the VSF
plant may not be closed during 2004 as against a closure
for 40 days during 2003, supporting the strong volume
growth more than offsetting the impact of rising pulp
prices.