GRASIM INDUSTRIES
PRICE: RS.2337 RECOMMENDATION: REDUCE
TARGET PRICE: RS.2421 FY11E P/E: 9.1X
ULTRATECH CEMENTS
PRICE: RS.739 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.842 FY11E P/E: 10.7X
q Ultratech Cements has decided to merge Samruddhi Cements Ltd with
itself in a share swap deal.
q Samruddhi shareholders to receive 4 shares of Ultratech Cements for
every 7 shares held in Samruddhi. Thus, correspondingly Ultratech Cements
will issue 149.5mn shares to Samruddhi shareholders.
q Entire deal is valuing the cement business of Samruddhi Cements at
$106/tonne and would also result in re-rating of Ultratech Cements as a
key player with largest cement capacity in the cement industry.
q We believe that this restructuring of cement business is positive for
Ultratech Cements in the long run and we continue to maintain ACCUMULATE
rating on the stock with a revised price target of Rs 842 (Rs 892
earlier). We continue to maintain REDUCE on Grasim with price target of
Rs 2421 (Rs 2413 earlier) since we believe that Grasim would now get a
holding company discount for its holdings in the cement business.
Following are the key highlights
Merger Details
Ultratech Cement has approved the merger with Samruddhi Cements Ltd and
shareholders of Samruddhi Cements will receive 4 shares of Ultratech Cements for
every 7 shares held in Samruddhi. Ultratech Cements will correspondingly issue
149.5mn shares to Samruddhi shareholders and expanded equity capital of
Ultratech Cements would stand at Rs 2742 million as against our estimate of Rs
2490mn. Grasim's holding in the merged entity would then be 60.3%. Entire deal
is earnings accretive for Ultratech Cements since overall capacity of Ultratech would
increase from 23.1MT to 48.8MT and operating profit is also expected to jump
from Rs 17.9bn to Rs 37.8bn in FY11 for the merged entity.
