1

De-Merger of
GRASIM and L&T
Presented by:
Khushboo Jalan
Shreya Adhlakhia
Hiren Jotaniya

2
Introduction of L&T Limited

3
 About It…..
 TYPE – Public company listed on BSE and NSE
 FOUNDED – 1938
 FOUNDER ( 2 Danish citizen engineer) – Henning
Holck-Larsen and Soren kristian-Toubro
 HEADQUARTER – Mumbai, India
 CHAIRMAN, MD,CEO – A.M.Naik
 REVENUE – 5$ billion USD (2006)
 EMPLOYEES – 35000(2007)

4
 Engineering and construction ,hydraulic
equipment,electrical and electronic power
services, fertilizer projects, medical
electronics and information technology.
 It generates almost 85% of its revenue from
the construction business.
 global initiative with office locations in
USA,Europe, Middle East and Japan.

5
The subsidiaries of Larsen & Toubro are:

• Larsen & Toubro Infotech Limited(L&T

Infotech), focusing on information technology and
software services.
• Larsen & Toubro EmSyS ([1]), working on the
domains of embedded systems and software.
• Larsen & Toubro Finance ([2]), focused on
Financial services.
• Larsen & Toubro e-Engineering Solutions ([3]),
Head Quartered at Vadodara, India, focused on e-
Engineering Services
6
ADITYA BIRLA GROUP

7
About It…….
 TYPE - Private Conglomerate/Listed
Companies.
 FOUNDED - 1900
 Aditya Birla Group operates over 40
companies in 12 countries across 4
continents.
 CHAIRMAN – Kumar Mangalam Birla
 HEADQUARTERS – Mumbai, India

8
 operations in 20 countries including Thailand, Laos,
Indonesia, Philippines, Egypt, Canada, Australia,
China, USA, UK, Germany, Hungary, Brazil, Italy,
France, Luxembourg, Switzerland, Malaysia and
Korea.
 EMPLOYEES - 100000+
 REVENUE - $24 billion
 PRODUCTS - Aluminum,Copper,Cement,
Textile Fibre etc.
 INDUSTRY - Metals and several others.

9
Aditya Birla Group’s Business
 It is organized into various subsidiaries that
operate across different sectors.
 Among these are viscose staple fibre, fertilizers,
 non-ferrous metals, sponge iron, insulators,
 cement, telecom, BPO
 viscose filament yarn, financial services,
 branded apparel,
 carbon black,
 chemicals, Supermarket More..., and IT
services.
10
 The Group consists of four main companies,
which operate in various industry sectors
through subsidiaries, joint ventures etc.
These are Hindalco,
Grasim,
Aditya Birla Nuvo,
UltraTech Cement.

11
 The Groups cement business is under both
Grasim and UltraTech cement.
 Together and make the group account for a
substantial share of the cement market in
India.
 UltraTech cement comprises the erstwhile
cement business of L&T which was acquired
by the group.
 UltraTech announced an increase in sales by
17% and Profit After Tax by 46% for the
quarter ending September 30, 2007
12
 Amongst largest industrial houses in India
 Revenues in excess of $4.5 bn and earnings of $400 mn
 Group flagships:
 Grasim Industries - Cement, Viscose Staple Fibre and
Sponge Iron
 Hindalco - Aluminum and Copper
 Indian Rayon - Apparel, VFY, Carbon black, IT/ITeS,
Insurance
 Indo Gulf - Fertilisers
 Group Vision : To be a premium conglomerate with a
clear focus at each business level
13
 Introduction of
Grasim Industries Limited (1948)

14
 Grasim: Business profile

 Viscose Staple Fibre

 Largest producer in the World, with 14% market share
 3 Fibre plants (220,775 MT), 1 pulp plant (72,000 MT)
 JV for Pulp with Tembec Inc., Canada
 Chemicals
 Second largest producer of Caustic Soda in India (190,800 MT)
 Cement
 14 Mn TPA existing capacity across 8 locations
 1.14 Mn M3 RMC capacities across 6 plants; 0.65 Mn Ton Bulk
Terminal
 Growing to 31 Mn. MT with CemCo acquisition
 Largest in India, 7th largest in the World
 White Cement (400,000 MT)
 India’s largest and World’s 6th largest
 Sponge Iron (900,000 MT)
15
 3rd largest and only gas based merchant supplier in India
 Business and Debt restructuring

 Major business restructuring done in last 4

years
 Closure of non-viable Fibre and Pulp plants at Mavoor
 Fabric unit at Gwalior sold
 Software subsidiary hived off
 Trading operations phased out
 Capital unlocked from sale of investments in MRPL &
Indo Gulf
 Large scale rightsizing of work force
 reduction of 8,000 persons (1/3rd of the workforce)
 Significant Debt restructuring
 Bringing down interest cost progressively
 13.2% in FY99 to 7.6% by 9MFY04

 Consequent reduction in overall CoC 16

Proposal for Acquisition of L&T Cement
Business

17
L&T CemCo Transaction
structure
 Step 1 : Cement Business of L&T to be de
merged into CemCo
L&T (EngCo) gets 20% holding in CemCo
and balance 80% to existing shareholders
proportionately
Grasim gets 12.6% holding in CemCo;
retains 15.7% holding in L&T (EngCo)
Appointed Date of Demerger – 1st April
2003

18
 Step 2A : Grasim buys 8.5% holding in CemCo
from L&T – (Outflow Rs. 362 crores)
 Step 2B : Grasim sells its 14.95% stake to
Employee Welfare Trusts and exits L&T
(EngCo) – (Inflow Rs. 446 crores)
 Step 2C : Grasim to make an Open Offer for
30% of CemCo
 Grasim to get management control of CemCo,
on its acquiring over 50% of CemCo shares
19
Summary of Investment and Valuation
in cr.
 Existing investment in L&T - 1,028
 Grasim to make open offer for 30% of CemCo -
1278
 Grasim to acquire 8.5% of CemCo from L&T-
362
 Total outflow for 38.5% (8.5% + 30%)- 1640
 Inflow on sale of L&T (Engco) shares to L&T
Foundation/Trust - 446
 Net Investment for 51.1% stake - 2222
20
L&T Cement Business Valuation

Equity Value 4,348

Debts 1,911
Enterprise Value 6,259
USD/Ton $ 79.90

21
 Potential Upsides for Grasim
Leading force in key growth sector
Grasim to have transitory rights for “L&T Cement”
brand for six month after Effective Date of De-merger
Significant value enhancing potential, both strategic
and operational
Complementary capacities from regional point of
view
Synergies likely to result into gain of – Rs.50 Crs to
each company 22
Production from plants with lowest “delivered cost”
Sale to markets nearer to the plants (logistics), reduced lead
distance
Economies of scale on procurement
CemCo has considerable scope for upsides in operating
margins
Unrealized sales tax exemptions and deferrals
Benefits of economies of scale
Benefit from utilisation of currently underutilised capacity
23
Grasim + CemCo

 With CemCo capacity, Grasim will be the 7th

largest Cement Producer in the World.
 All India Capacity Ranked No.1
 31 Mn. MT Capacity
 11 Composite Plants
 7 Split Grinding Units
 4 Bulk Terminals
 6 RMC Plants
 Strong National Presence

24
 Book Value – from Rs.285 in FY99 to Rs.447
per share in FY04
 Debt/Equity ratio improved from 0.93 x in
FY99 to 0.54 x in FY04

25
26
Introduction about ULTRATECH
 A Grasim subsidiary
 Incorporated on 24 August 2000 as L&T Cement
Limited
 Chairman- Mr. Kumar Mangalam Birla
 An annual capacity of 17 million tonnes
 The cement division of L&T was demerged in 2004
after Grasim made the 30 per cent open offer for
equity shares
 Manufactures and markets
 Ordinary Portland Cement
 Portland Blast Furnace Slag Cement
 Portland Pozzolana Cement
27
Continued…….
 Five integrated plants, five grinding units and three
terminals -two in India and one in Sri Lanka.
 All the plants have ISO 9001 certification, and all but
one have ISO 14001 certification.
 UltraTech is the country's largest exporter of cement
clinker.
 The company exports over 2.5 million tonnes per
annum, which is about 30% of the country's total
exports.
 The export markets span countries around the Indian
Ocean, Africa, Europe and the Middle East.
 EPS of Rs.20.84 as on 30 June 2007
28
Continued…….
 The shareholding pattern of UTCC is 51% with
Grasim, 12% with financial institutions, 11.5% with
L&T and the remaining with institutional and retail
shareholders.
 The first quarter results of the Company have
improved.
 Market shares have risen marginally from 9.9% to
10.3%. While volumes have gone up by 5.4%,
revenues have soared by 22%.
 Exports have risen phenomenally at 31% year-on-
year.
 Together with Grasim the largest cement producer in
India.
29
While launching ULTRATECH:

“Nothing has changed except the name. So

essentially what was earlier L&T cement,
now transforms into UltraTech Cement".
- Mr. Kumar Mangalam Birla

30
“Excellent product quality and customer
care to remain the hallmark of UltraTech"
- Mr. Kumar Mangalam Birla

31
CASE

 L&T's decision to demerge the cement division to

prevent a takeover by Grasim.
 In October 2002, Larsen & Toubro Ltd. (L&T), a
leading Indian business group, announced plans to
spin off (demerge) its cement unit into a separate
company.
 Grasim proposed a vertical demerger plan for L&T in
November 2002.
 All L&T shareholders were to get a stake in the new
cement company, in the existing proportion of their
respective stakes. In addition, it proposed that the
cement company be listed on various stock
exchanges.

32
 In October 2002, Larsen & Toubro Ltd. (L&T),
a leading Indian business group, announced
plans to spin off (demerge) its cement unit
into a separate company.
 According to L&T sources, the company had
been considering the demerger since late-
2000.
 Reason for demerger - the cement division
generated 26% of the group's revenues, it
consumed over 75% of its total investments.

33
 L&T along with financial institutions (FIs)
would hold 76% in the new cement company,
while the remaining 24% would be distributed
among the existing shareholders of L&T.
 Later sell 6% of its share to the FIs.
 retain the control in the company for the
following 4 or 5 years and subsequently, sell
half of the 70% stake to a strategic partner.
 L&T reportedly was trying to protect itself
from a possible takeover by Grasim Industries
Ltd. (Grasim). 34
•Since late-2001, Grasim had acquired over 15%
stake in L&T and had also made an open offer to
L&T shareholders to further increase its stake.
•Grasim's stake in the cement business would
come down to 3.75%, if L&T's demerger plan went
through.
•Since Grasim had spent over Rs 10 billion4 in
acquiring its L&T stake because its own core
business.
35
Reliance War
 The dispute, which dated back to September 2001
when Grasim first bought a stake in L&T, soon
became one of the most bitterly fought battles in
India's corporate history.
 The Reliance Group (Reliance), which held 3.92% in
L&T in September 2001, had increased its stake to
10.05% by November 2001, by acquiring over 15.8
million shares from the market.
 Reliance sold this entire stake to Grasim at Rs
306.60 per share, at a premium of 47% over the
prevailing market price of Rs 208.50.

36
The Open Offer
 Meanwhile in May 2002, Grasim further
acquired a stake of 2.84% in L&T from the
open market, taking its overall holding to
12.89%. These shares were purchased at
prices ranging between Rs 175 to Rs 180.

37
A TUG of OFFER
 Grasim came out with an alternate vertical
demerger plan in November 2002. According
to this plan, the cement unit was to be
demerged into a separate entity which would
be listed on the stock exchanges.

38
FINALLY CASE FACT ------

 Grasim and L & T are expected to move ahead

 Grasim agreed to acquire the cement division of
rival L & T in one of the country’s largest merger
and acquisition transactions,
 for Rs 2,200 crore. According to the complex deal
between the two companies, Grasim would
eventually take 51% in L&T’s de-merged cement
division, tentatively called CemCo. While L&T’s
cement business is valued at Rs 6,051 crore,
 the company’s engineering business is valued at
nearly Rs 3,000 crore.
39
 Thus, the value of the company works out to
around Rs 9,000 crore, compared to its latest
market cap of Rs 5,954.16 crore, leaving
scope for further appreciation.

40
THANK YOU

41