Grasim Industries, the leading cement maker of the A V Birla group, is not enthusiastic at a proposal to merge with its subsidiary, UltraTech, as it does not see value in the process at this stage.
It says investment bankers suggested merging after engineering giant Larsen & Toubro sold its residual 11.5 per cent stake in UltraTech to financial investors this month.
Grasim acquired UltraTech cement from Larsen & Toubro in 2003. In 2005-06, it created a single marketing team for both companies to save on energy and cost. In 2007-08, it even phased out Grasim's national brand, Birla Super, to establish UltraTech as a single brand.
If merged, they will become India's largest cement firm, with a combined capacity of 42 million tones a year, overtaking ACC, controlled by Switzerland-based Holcim. However, the merger would attract a substantial capital gains tax, besides stamp duty on plant and machinery that varies between 1 to 8 percent from state to state.
"Since we are already working as one brand and one marketing team, substantial benefit is not likely to come from the merger at this stage," said Adesh Gupta, group executive president and chief financial officer, Grasim. Besides, streamlining the separate lease licenses held by both the companies for limestone mining is an arduous task.
Currently, Grasim is traded at a discount compared with ACC and Ambuja Cement, both controlled by Holcim. And that is prompting investment bankers to suggest merger. A higher valuation would help the company in its fund raising plans.