PRESS RELEASE

3 October 2009

Grasim to demerge cement business

• Grasim’s shareholders to participate directly in a new subsidiary
• Creates platform for potential consolidation
• Rs. 1000 crore greenfield VSF project, capacity to go up by 25 per cent
  

The Boards of Directors of Grasim Industries Limited (“Grasim”) and Samruddhi Cement Limited, a wholly owned subsidiary of Grasim (“Samruddhi”), in their respective meetings held today, approved a proposal to demerge the cement business of Grasim into Samruddhi.

Samruddhi will issue 1 (one) new equity share to Grasim shareholders for every equity share they hold in Grasim, in addition to their existing Grasim shares. On completion of the demerger, Grasim shareholders will directly hold 35 per cent of Samruddhi, and Grasim’s stake will be diluted to 65 per cent. Samruddhi is proposed to be listed after the Scheme is made effective.

As a separate matter, Samruddhi has resolved to pursue onward consolidation of the cement business and to that intent, it has decided to make a formal consolidation proposal to the Board of Directors of UltraTech Cement Limited.

Mr. Kumar Mangalam Birla, Aditya Birla Group Chairman said “This is part of Grasim’s continuing efforts to improve shareholder value, in keeping with its record of outperforming both Sensex and its Peers over the past 10 years. The restructuring move announced today is designed to ensure Grasim’s majority stake in, and continued support to, the rapidly growing Cement Business; while simultaneously, providing Grasim shareholders direct participation in the pure play cement company.”

Mr. Adesh Gupta, Whole Time Director and Chief Financial Officer, Grasim, added “Whilst Grasim’s commitment to fund necessary capital for the growth of cement business remains unabated, the demerger opens up new choices for financing growth in the cement business in addition to continued parentage of Grasim, as also strengthening its other businesses.”

The Restructuring Scheme
According to the restructuring proposal approved by both the Boards, the demerger is proposed to be undertaken through a Court approved Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956. The appointed date for the transaction is 1st October 2009.

Under the Scheme, Grasim will transfer its cement businesses, including related businesses / investments but excluding its investment in UltraTech, to Samruddhi. In consideration, Samruddhi will issue one equity share of Rs. 5/- face value each credited as fully paid-up to the shareholders of Grasim for every equity share they hold in Grasim as of the Record Date.

Upon effectiveness of the Scheme, Samruddhi will be held approximately 65 per cent by Grasim and the balance 35 per cent will be held directly by the Shareholders of Grasim. Samruddhi is proposed to be listed.

Commenting on the rationale for the proposed restructuring, Mr. Birla added “The Board considered various other options before concluding and approving the structure. It reaffirmed its continuing interest in the cement business and hence wanted to consider only those restructuring proposals which ensured continued control and strategic interest.”

Ernst & Young has submitted a report on share entitlement ratio, whilst DSP Merrill Lynch has provided a fairness opinion to the Board of Grasim.

Timing of restructuring and its objectives
Grasim is at an inflexion point. The strategy of using VSF’s cash flows to grow cement has succeeded and cement today accounts for over 67 per cent of current Grasim’s standalone EBITDA as compared to only 30 per cent in FY04. The Board, therefore, considered that the cement business be restructured in a manner that meets with all of the following objectives viz.

• protect and maximise value to shareholders
• creation of a pure play cement operation,
• opening up new financing options for its growth,
• create platform for potential eventual consolidation,
• provide direct exposure to Grasim’s shareholders,
• least possible transaction costs.

Cement Sector opportunities very promising
India is the second largest cement market in the world, even though its per capita consumption is just one-eighth of China. The long term outlook is promising, even though a surplus caused by new cement capacities is likely to put pressure on margins over the immediate term.

Continuing business of Grasim
Grasim is setting up a Greenfield VSF plant at Vilayat, Gujarat for an estimated investment of Rs. 1000 crores The capacity of this plant would be about 80,000 tpa, increasing Grasim’s total capacity by about 25 per cent. Commercial production is expected to commence in FY 13. Most of the requisite permissions for the plant have been received. This will reinforce Grasim’s position as a world leader in VSF.

Grasim will continue to invest in VSF and other businesses, as further opportunities unfold.

Advisors to the restructuring

• DSP Merrill Lynch Limited and Enam Securities Private Limited acted as advisors.
• DSP Merrill Lynch Limited provided a fairness opinion to the Board of Grasim.
• Amarchand & Mangaldas and Suresh A. Shroff & Company acted as Legal Advisors.
• Ernst & Young Private Limited submitted a report on the share entitlement ratio.

The proposed Scheme of Arrangement will be subject to the approvals of the High Court of Judicature at Madhya Pradesh, Indore Bench and the High Court of Gujarat at Ahmedabad. The restructuring will further be subject to various statutory approvals, including those from the shareholders and the lenders / creditors.

This Press Release is being jointly released by Grasim and Samruddhi.