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Melting Cement

In a smooth killing ICL's N. Srinivasan gobbles up Raasi Cements

Melting Cement

 WHEN the Rs 832-crore India Cements Ltd (ICL) acquired a controlling stake in Raasi Cements by purchasing promoter B.V. Raju's and 17 others' stake of 32 per cent at an average price of Rs 286 per share, it was a dream come true for N. Srinivasan, vice chairman and managing director, ICL. The Rs 380-crore deal was one of the biggest ever acquisitions in Indian corporate history, and the first successful hostile takeover.

Raju was loath to sell the company that had taken 20 years to build, and had even publicly evoked Andhra pride. A team of leading Andhra industrialists, led by Dr K. Anji Reddy, chairman of Dr Reddy's Labs, had petitioned chief minister Chandrababu Naidu against the hostile takeover bid, accusing Srinivasan of splitting the Raasi family. Finally, abandoned by the shareholders he had relied on, Raju capitulated on the night of April 5. "The unfortunate event of sale of shares by Andhra Pradesh Industrial Development Corporation (APIDC) to ICL created further problems for me in addition to the sale of shares by one of my family members", he admitted.

With the agreement, ICL's holding in the Rs 350-crore Raasi Cements goes up to 53 per cent of the paid-up capital of the company. ICL hopes to get another 20 per cent through the open offer for a price of Rs 300 per share. ICL is also hopeful of getting the six per cent stake in Raasi held by some transport operators. In all, the Raasi deal will cost ICL less than Rs 500 crore. A fantastic bargain, considering that a greenfield plant of this size would have cost ICL more than Rs 1,000 crore and involve a gestation period of three years.

With the acquisition under its belt, ICL's marketshare in the south will go up from the current 14 per cent to 35 per cent. Returns from Raasi are expected to be Rs 54 crore in the first full fiscal year. There may be some hidden benefits too, sources point out. Primarily, that the price realisations can be manoeuvred once the additional capacity from Raasi is with ICL. If the price of cement is increased by one rupee per bag, there could be an additional revenue flow of Rs 7.5 crore from the 7.5 million tonne (MT) capacity.

Secondly, the acquisition will wipe out the competition between two company's brands in the same markets. Till now, both ICL and Raasi were competing with each other in Tamil Nadu and Andhra Pradesh markets, sources point out. The plants will serve only nearby markets, thus also eliminating transport costs. The Raasi takeover proves that Srinivasan, the first fiercely competitive businessman to emerge from the south, has sharply honed his killer instinct.

He has mastered the art of friendly as well as hostile takeovers even as he has built the group's core competence in cement. He uses his political connections very subtly so that very few notice the series of coincidences. Especially the role of godfather Murasoli Maran, former Union industries minister.

ICL has two promoters, Srinivasan and his brother N. Ramachandran on the one hand, and the Sanmar group controlled by brothers N. Sankar and N. Kumar (the present CII president) on the other. Both have equal stakes in the cement major. In the '80s, the promoters had fallen out on running ICL. The legal battle between Srinivasan and the Sankar families led to the stepping in of financial institutions to manage the company. After FIs ran the company for a decade, when the DMK was voted back to power in 1989, ICL came back to the promoters thanks to "friendly intervention" by chief minister M. Karunanidhi.

While Sankar became its chairman, the team led by Srinivasan was given full freedom to chalk out a growth strategy for the company. Srinivasan completely revamped the company and successfully turned it around. Then began the expansion drive. In 1990, he acquired the one million tonne cement plant of Coromandel Fertilisers in Andhra Pradesh at a cost of Rs 105 crore. Last year, ICL commissioned a new 9 lakh tonne plant in Tamil Nadu at a cost of Rs 370 core. Alongside, ICL also acquired the upcoming Visaka Cement in Andhra Pradesh which is expected to commission its 9 lakh tonne plant in September this year, for a cost of Rs 300 crore.

Then came the takeover of the Yerraguntla plant of the public sector Cement Corporation of India last year. ICL and Srinivasan managed to pip Gujarat Ambuja, the other bidder, at the post because of the tacit support he got from the Union industries minister then.

This was followed by the Raasi bid. All this has entailed an investment . of Rs 1,300 crore. With all these successes, Srinivasan has finally emerged out of the shadow of the Sanmar Group. As a next step, perhaps the canny predator will ask the Sanmar group not to include ICL's name in their brochures as an associate company!

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