Takeover of Raasi Cements by India Cements

Contd...

The addition of Raasi’s 2 mtpa capacity would make it the undisputed leader in the south of the country. Again, a Raasi takeover meant automatically acquiring 39.5% equity in the 1 mtpa Sri Vishnu Cement Ltd. (SVCL), another Group Company⁵

Background

ICL was one of the largest cement producers in south India. The company had a strong presence in the states of Tamil Nadu, Kerala and Andhra Pradesh. Cement constituted approximately 97% of ICL’s total revenues. Besides cement, the company had a presence in wind energy and real estate.

In early 1998, ICL had six cement plants, three each in Tamil Nadu and Andhra Pradesh and its capacity had increased to 5.2 mtpa. ICL entered Andhra Pradesh by acquiring the Chilamakur plant from Coromandel Fertilizers in 1990. In September 1997, ICL took a 100% stake in Visaka Industries Ltd through its subsidiaries and associate companies.

Also in 1998, ICL acquired the Yerranguntla plant from the Cement Corporation of India (CCI). Raasi was promoted by Raju and his son-in-law, N P K Raju in 1978. Other than cement, the group also had interests in ceramics and paper. Raasi’s cement division had a capacity of 1.60 mtpa.

Raasi seemed to be an attractive target for ICL as it was a relatively low cost producer. Analysts felt that Raasi failed to capitalize on its low production cost, because of its weak marketing set-up, particularly in Kerala and Tamil Nadu. As a result, Raasi tended to dump the cement in its weak markets thereby putting pressure on other players in the region.

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5] SVCL was promoted in 1985 by Raju and the Andhra Pradesh Industrial Development Corporation (APIDC). It became a sick unit in 1990. A rehabilitation package was worked out by the Board for Industrial and Financial Reconstruction (BIFR) in 1995, under which Raasi was permitted to bring in nearly Rs 5 crore as share capital. At that time it was stated that the shares allotted to the promoters would be locked in for a period of three years from the date of allotment. To that effect, the promoters had also given non-disposal undertakings to the Financial Institutions. With this share allotment, Raasi held 39.5% in the equity capital of SVCL.

Case Details

Case Code : BSTR001
Themes: Mergers Acquisition and Takeovers
Case Length : 8 Pages
Period : 1998-1999
Organization : Raasi Cements Sri Vishnu Cements Limited
Pub Date : 2001
Teaching Note : Available
Countries : India
Industry : Construction - Building Materials & Equipment

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