GRASIM INDUSTRIES: WIND OF CHANGE

One must guard against falling prey to the 'last mile exhaustion' in the journey of change.1

- Kumar Mangalam Birla, Aditya Birla Group

Introduction

It was 15th November, 2009 and Rohit Ranjan, a public shareholder of Grasim Industries, was contemplating his investment in Grasim, in which he held 10,000 shares. 43 days earlier on October 3rd, 2009, Grasim had announced a restructuring scheme under which it planned to demerge its cement business into a wholly owned subsidiary called Samruddhi Cement ltd. and then merge the subsidiary into Ultratech Cements Ltd., in which it held 55% share.2 Grasim was one of the largest cement manufacturers in the country with a total consolidated annual capacity of 41.6 million tonnes. Grasim was also into VSF (Viscose Staple Fibre), Textiles and Chemicals business.3 The restructuring move was planned to create a focused pure-play cement entity for Grasim’s shareholders and re-strengthen Grasim’s control over the cement business. The restructuring was planned such that Grasim’s shareholders would also receive direct shareholding in Ultratech once the restructuring was completed.

Rohit knew that he had to perform a valuation exercise in order to find the post-restructuring value per share of Grasim industries to identify whether he should hold or sell the shares. Rohit remembered the “Sum of the Parts” valuation methodology that he learned in his MBA and was planning to use it to arrive at the valuation. He also planned to consider the value of direct shareholding in Ultratech that Grasim’s shareholders would get. However, he wondered what would be the swap ratio that Grasim would use for the merger of its subsidiary Samruddhi into Ultratech. The post-restructuring value per share of Grasim depended on this swap ratio. He was also worried about potential dilution of economic ownership due to the demerger of cement business into Samruddhi.

Cement Industry Overview

The history of modern cement production can be traced back to 1824 when Joseph Aspdin, an English civil engineer got a patent for “Portland Cement”. Joseph used a manufacturing process in which he fired finely ground clay and limestone until the limestone was calcined. He named it “Portland Cement” because the concrete made from it looked like Portland Stone, a limestone that was quarried on the channel coast of England. 4

In the modern Portland Cement process, cement was made by heating limestone with small quantities of other raw materials up to 1450 OC in a cement kiln. The hard material which resulted from heating limestone and chemicals was “Clinker”. Clinker formed small lumps, which were then crushed with small amount of Gypsum into a powder form. This form was the final product called “OPC” (Ordinary Portland Cement). Limestone was a key raw material as it was the prerequisite to make clinker.

Indian cement production was divided into four major categories

1

1. Ordinary Portland Cement (OPC): OPC comprised 95% Clinker with remaining 5% comprising gypsum and other materials. 2. Portland Pozzolana Cement (PPC): PPC comprised 80% Clinker with 15% pozzolana and 5% gypsum. 3. Portland Blast Furnace Slag (PBFS): PBFS comprised 50% blast furnace slag, 45% clinker and 5% gypsum.5

In FY08a, 66.1% of the production was Portland Pozzolana Cement, 25.5% was Ordinary Portland Cement and 8.1% was Portland Blast Furnace Slag. In 2009, more than 65% of India’s limestone came from Madhya Pradesh, Andhra Pradesh, Chattisgarh, Rajasthan and Gujarat. Hence, companies preferred to make clinker in these states and then did the grinding of cement in the location where cement was required. This minimized the logistics cost for the companies.6 (Exhibit 1 shows the value chain of Indian Cement Industry)

In 2009, India was the world’s second largest Cement producer after China.7 India as a whole produced 181.6 million Metric Tons (mMT)b of cement in 2008-09. Total built capacity was standing at 205.6 Million tonnes with a capacity utilization of the sector standing at 88.3%.8 The installed capacity had grown at a CAGR of 3.69% during 2002-2007.9 In the year 2008-09 there were 104 integrated cement plants with an average capacity per plant of around 1.6 mMT per annum. Along with this there were 35 grinding units with an average capacity of 1 mMT per annum.10 In 2007-08, India exported 2.37 mMT clinker and 3.65 mMT Cement.11 Consolidation had taken place in the Indian cement industry with 51.27% of the total capacity held by top 6 players. (Exhibit 2 and Exhibit 3 Show the trend in Market share held by major players in the industry by capacity.) In the last couple of years there had been consolidation in the industry through various transactions. Gujarat Ambuja (later renamed as Ambuja Cements) acquired 14% share in ACC and Grasim acquired cement business of L&T and formed Ultratech. Holcim acquired minority stake in GACL (Gujarat Alkalies and Chemicals Limited) and 67% stake in ACC and Heidelberg Cement acquired 50% stake in Indorama Cement. Apart from top six players, the rest of the capacity remained fragmented among other players. 12

The global Cement production in 2008 was around 2900 mMT. China and US produced 1450 mMT and 86.1 mMT respectively in 2008.13 China had roughly five times as much capacity as India.14 India’s Cement consumption per capita was standing at 148 kg compared to 1036 kg of China. (Exhibit 4 shows the country-wise cement consumption per capita in 2008) There was a huge potential for growth in cement segment as per capita consumption was below the world average of 420 kg.15

Cement being a freight intensive industry made transportation of the product over long distances uneconomical. Hence, the industry was divided into five main regions in India – North, south, east, west and the Central Region. Southern region had limestone in abundance and historically enjoyed excess capacity. Western and Northern regions had, on an average, higher income level and hence, resulted in higher demand. (Exhibit 5 Shows region-wise demand distribution in FY09) 16

Due to high growth potential, global players were also trying to enter the industry. Acquisitions had been made by Lafarge, Heidelberg and Italicementi. Holcim had acquired stake in local companies like Ambuja cement. Grasim’s 53.63% stake in Shree Dig Vijay was acquired by Cimpor, a Portugese cement a Financial year runs from 1st April of a year to 31st March of next year, abbreviated as FY08 in this case. b 1 Metric Ton = 1 Tonne

2 manufacturer. Foreign players were also facing a lot of difficulties since the market capacity was fragmented and they had to incur a lot of transaction costs in acquisitions.17

Domestic cement demand grew at 10% CAGR in the last 5 years. In FY09 the industry registered a volume growth rate of around 9-10% y-o-y. The industry went through a capacity addition of around 26.88 Tonnes in FY09. The realization (Price per unit of cement bag) increased by around 5% y-o-y. Because of constant addition of capacity and increase in supplies the realization could not increase further. The demand of cement moderated because of the global economic crisis and tightened credit conditions. In the FY09 budget, government imposed at duty of 7.5% on RMC (Ready mix concrete) cement which negatively impacted RMC manufacturers but it did not have a severe impact on the industry as RMC only accounted for 5% of overall cement consumption. The industry was projected to grow at 8-9% in the short and medium term owing to government infrastructure and housing sector initiatives.18

The best metric to measure the efficiency and profitability of a cement company was EBITDA/Tonne. Efficient supply chain management, higher bargaining power over suppliers, captive access to raw materials such as Limestone, coal, petcoke etc. and good capacity utilization drove this ratio to a high level. A comparison of this ratio across the industry players was done by the analysts to compare the management efficiency across companies. (Exhibit 6 Shows FY09 EBITDA/Tonne for major industry players with other key Margins)19

Grasim Industries

Headquartered in Nagda city in Ujjain district of Indian state Madhya Pradesh, Grasim was one the largest cement manufacturers of the country. Grasim was a subsidiary of the Aditya Birla Group, one of the India’s largest conglomerates. Grasim Industries came 4th in terms of market share by capacity with a share of 9.56% (Standalone Capacity). Grasim had two core businesses Viscose Staple Fibre (VSF) and Cement. In FY09 cement business generated 74% of the gross turnover of INR 204,320 million and VSF generated 15%. The net profit of FY09 was around INR 21,870 million. Historically, Grasim used VSF’s cash flow to finance the cement business growth. (Exhibit 7 shows the consolidated financial performance of Grasim Industries over the years)20

To compete in the growing cement segment Grasim commissioned clinkerisation plants at Shambhapura and Kotputli in Rajasthan. Both plants were projected to have a capacity of 3.3 mMT per annum each. Grasim also started to work on a split-grinding 1.3 mMT per annum unit in Dadri, Uttar Pradesh. In order to support growth Grasim did a capex of INR 14,670 million in FY09 in cement business. (Exhibit 8 Shows the detailed performance of cement division) Grasim projected its consolidated capacity to increase from 41.6 mMT per annum to 48.9 mMT per annum after the undertaken projects and restructuring get completed. Grasim also held around 55% equity in Ultratech Cement making it a subsidiary of Grasim. Grasim’s main focus in cement division going forward was to focus on capacity expansion, increased productivity and cost optimization. 21

Grasim was the pioneer of VSF in India. VSF was widely used in apparels, home textiles, knitted wear and dress materials. In FY09 Grasim had a total capacity of 333,975 Tonnes per annum for VSF. The VSF business of Grasim saw a slowdown in FY09 on account of global financial crisis and significant surplus capacity all over the world. This affected the VSF business realization, which decreased steadily

3 throughout the year. (Exhibit 9 shows trend in “India Wholesale Price Index for Viscose Staple Fibre” with base year of 1993-94) In FY09 sales for VSF business declined by 12% and realization declined by 7%. This resulted in reduction of EBITDA from INR 10,971 million to INR 5163 million and reduction in EBITDA margin from 36.4% to 20.4% in FY09. (Exhibit 10 shows the detailed performance of VSF segment) The recovery of textile sector was projected to be slow. In VSF business division, Grasim’s focus was to reduce costs in energy, logistics and overheads to maintain a low-cost leader position in the industry.

Apart from Cement and VSF, Grasim also had a chemicals business. In FY09 Grasim had a total Caustic Soda capacity of 258,000 Tonnes Per Annum. Chemicals division reported Net divisional revenue of INR 5,225 million and an EBITDA margin of 29.7% in FY09. (Exhibit 11 Shows detailed year on year performance data for chemicals division)

Grasim as a whole was focusing on a core business strategy for the long-term. In-line with this strategy they were selling off non-core businesses. Grasim completed the sale of its Sponge Iron business for INR 10,300 million on 22nd May, 2009 in line with the core business strategy.22

The Restructuring Scheme

On October 3rd, 2009 the Boards of Directors of Grasim Industries limited and Samruddhi Cement Limited agreed to demerge Grasim’s cement business into Samruddhi. According to the scheme Samruddhi would issue 1 new equity share to shareholders of Grasim for each equity share that they held in Grasim. Samruddhi was incorporated on September 4th, 2009 and was a wholly owned subsidiary of Grasim. Samruddhi had a total of 170 million shares of face value INR 5 each owned by Grasim Industries before the Demerger.23 The effective date of the scheme was set to be October 1st, 2009 and Samruddhi was proposed to be listed after the demerger. In the continuation of the scheme Samruddhi was to be merged with Ultratech Cements to create a pure-play cement entity under Grasim.24 (Exhibit 14 shows the proposed scheme and Exhibit 15 shows the projected timeline of the scheme)

Commenting on the scheme 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.”25

Before finalizing this restructuring scheme, the board of directors considered various other options to achieve the objective of control and a pure-play entity. The various other alternatives included

• Demerging the cement division into an independent company through a vertical split. This could’ve given more direct holding to Grasim’s shareholders but would’ve resulted in loss of control for Grasim. • A direct merger of Ultratech and Grasim Industries. This wouldn’t have satisfied the pure-play interest of the shareholders. • Transferring the cement business to a wholly owned subsidiary. This type of restructuring wouldn’t give Grasim’s shareholders a direct shareholding.26

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Grasim had been using VSF’s cash flow to fund the growth of the cement business. Cement business grew to 67% of Grasim’s standalone EBITDA in FY09 compared to only 20% in FY04. The two activities were completely different and required dedicated management focus in order to tap the growth in each of the segments. In order to maximize the growth potential and shareholder value, Grasim decided to create a pure-play cement entity. This would provide dedicated management focus on Cement business. This also would provide pure-play exposure of Cement to Grasim’s shareholders. The scheme was undertaken under the provisions of Sections 391-394 of the Companies Act, 1956.

The restructuring was done keeping in focus the following objectives

• Creating a pure-play cement entity. • Maximizing shareholder value. • Providing direct exposure of cement business to shareholders. • Maintaining control over the cement business.27

The merged cement entity would benefit from regional diversification. Ultratech’s market mix was skewed toward Western and Southern states where it sold 75% of its cement. The merger would help Ultratech to become well diversified with pan India presence. (Exhibit 16 shows Ultratech’s post-merger projected region-wise market share) Apart from this, Ultratech would also benefit from power capacity of Grasim, which added 144 MW of CPP (captive power plant) capacity in FY09.28 (Exhibit 17 shows the combined cement and power capacity post-merger)

Valuing Grasim Post-Merger

Rohit waited till November 15th, 2009 to see how the market was reacting to the restructuring news. (Exhibit 18 shows the share price trend post restructuring announcement and Exhibit 19 shows the Bloomberg Analyst recommendation before and after the scheme announcement) Now, Rohit was planning to do his own valuation of Grasim to arrive at the value per share and the total benefit an existing shareholder would get from the restructuring scheme. Rohit planned to use EV/Tonne (Enterprise value (in $) / Annual Capacity) multiple, which was predominantly used by all equity analysts to value a cement manufacturing firm. (Exhibit 20 shows the projected relative multiples for cement companies) He decided to take a range of the multiple to cover the bearish and bullish scenario. He also planned to value Ultratech using DCF valuation to cross-check the value that would come from EV/Tonne multiple. (Exhibit 21 gives the financial projections of Ultratech) For the VSF division he decided to use EV/EBITDA multiple. (Exhibit 22 shows the EV/EBITDA multiples for Man-made fibre Industry) Market value of other investments could be used to value the remaining firm. (Exhibit 23 shows the divisional projections for Grasim Industries)

However, Rohit was wondering whether there would dilution of economic ownership for Grasim’s shareholders due to the restructuring scheme. To estimate this, he planned to calculate ownership of Grasim and Grasim’s shareholders in Samruddhi and Ultratech. (Refer to Exhibit 14 X%, Y% and A% and B%). Rohit was also thinking how he would arrive at a swap ratio for the merger transaction. He wondered whether an EPS neutral or Capacity ownership neutral swap ratio could be a starting point.

5

Appendix

Major Players in Indian Cement Industry

ACC Ltd.

ACC Ltd. was one of the largest players in the industry with a total market share of 10.89% by capacity in 2009. ACC increased its installed capacity to 26 million tonnes per annum at the end of 2009 from 23 million tonnes per annum in December 2008. It had sound financials with negative net debt even after spending INR 15,620 million on capital expenditure. This highlighted their policy of conserving cash resources. 29

ACC posted a consolidated income of INR 87,250 million in FY09, a 9% y-o-y increase compared to FY08. Profit after tax for the year was INR 15,640 million a 42% increase over the last year profit of INR 11,000 million. The EBITDA Margin stood at 32.3% in FY09, up from 25.5% of last fiscal year. The company was working on expansion projects in Bargarh, Thondebhavi and Kudithini in Karnataka. The company’s on- going focus was on building organizational capabilities. ACC’s focus was on reducing costs and increasing productivity which in turn enhances cost-competitiveness to thrive in a competitive industry like cement. Hence, they were using steam based captive power plants (CPP) to improve cost-competitiveness. They were also putting efforts in strengthening their dealer network and minimizing working capital build-up.

The company was also doing acquisitions in different regions to maintain their regional leadership. They had acquired 100% equity stake in Rajasthan based National Limestone Company Private Limited (NLCPL) to capitalize on their limestone reserves. Apart from this they had also acquired Encore cements and additives private limited (ECAPL) in Andhra Pradesh. The company had a AAA rating by CRISIL for its long- term non- convertible debentures. 30

Ambuja Cements Ltd.

Ambuja Cements Ltd boasted the second highest market share by capacity in the industry. Ambuja posted sales by volume of 18.79 million tonnes and production of 18.83 million tonnes in FY09. Ambuja was taking clinkerisation expansion projects at Bhatapara and Rauri. The company posted improved financial results in FY09 with an 8% increase in EBITA at INR 19270 million. It maintained 18% market share in its main markets and around 10% market share all over India. 31

Ambuja had a strong network of 6,000 dealers and 20,000 retailers across 18 states in India. Its main focus was on building a strong channel through long term relationships. With Holcim’s support they started using sophisticated channel management tools to manage its channel partnerships.

Due to high dependence on coal prices the EBITDA margin reduced from 29.3% to 27.9%. Hence, Ambuja intensified its efforts to reduce the dependency on coal for kilns and captive power plants. Their focus turned towards lignite, biomass, petcoke. In order to increase the market reach in south, Ambuja started a new bulk cement terminal in Kochi. Apart from this Ambuja sanctioned INR 27,000 million for two new cement grinding facilities at Dadri (UP) and Nalagarh (HP).32

6

Ultratech Cements Ltd.

Ultratech had the third highest market share by capacity of 10.65%. Ultratech was a subsidiary of Grasim Industries which held 55% of its equity. Ultratech manufactured and marketed ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzolana Cement. Ultratech was the largest exporter of cement clinker in India.33 In FY09 Ultratech registered net revenues of INR 63,830 million, up by 16% compared to last year with a profit of INR 9770 million. Ultratech completed its expansion projects in Andhra Pradesh Cement Works (APCW) and grinding unit in Ginigera. Company’s total capacity stood at 23.1 mMT per annum. Ultratech was also investing in captive thermal power plants to have access to around 236 MW, which could fulfill 80% of its power requirements. These initiatives would cost Ultratech INR 32000 million in total. The company’s objective was to improve productivity and preserve cash. (Exhibit 12 and Exhibit 13 shows the capacity, sales and production comparison from last fiscal year)34

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Exhibit 1 Value Chain on Cement Industry in India

Source: IMaCS (ICRA Management Consulting Services Limited) Analysis 2009

8

Exhibit 2 Capacity and Production of Major Players in the Cement Industry

Capacity in Million Tonnes Per Annum Company Name FY05 FY06 FY07 FY08 FY09 A.C.C. Ltd. 18.2 18.6 20.0 22.2 22.4 Ambuja Cements Ltd. 13.6 16.3 18.5 22.0 22.0 Ultratech Cements Ltd. 17.0 17.0 17.0 18.2 21.9 Grasim Industries Standalone 14.1 14.1 14.1 16.8 19.7 India Cements 8.8 8.8 8.8 8.9 10.4 Shree Cement 2.6 3.2 4.5 6.5 9.1 Total Indian Industry Capacity 151.3 157.58 165.5 179.6 205.6 Total Indian Industry Production 127.6 141.8 155.7 168.3 181.6 Source: Indiastat- Plant/Location/State-wise performance of Cement companies in India 2005-2009, Companies’ Annual Reports FY05-FY09

Exhibit 3 Trend in Top Six Players’ Capacity-wise Market Share

53.00% 52.69%

52.00% 51.27% 51.00% 50.10% 50.00% 49.56% 49.12% 49.00%

48.00%

47.00% FY05 FY06 FY07 FY08 FY09

Source: Indiastat- Plant/Location/State-wise performance of Cement companies in India 2005-2009, Companies’ Annual Reports FY05-FY09

9

Exhibit 4 Country-wise Cement Consumption (Kg/Capita) in 2008

1400

1200 1114 1036 1000 940

800

600 446 400 305 271

200 148 Cement Cement Consumption (Kg/Capita) 0 South China Singapore Japan USA Brazil India Korea

Source: Globalcement.com, ”Defining the trend: Cement Consumption vs GDP” article 29th May, 2014

Exhibit 5 Region-Wise Domestic Annual Demand India FY09 (Million Tonnes)

Region Demand North 53 East 28.2 Central 8.4 North+East+Central 89.6

West 34 South 54.3 West+South 88.2 All India 177.8 Source: RBS Ultratech Investment View 20th November, 2009

10

Exhibit 6 Performance of Key players in Indian Cement Industry in FY09

Installed Capacity Production (Mn Revenue (INR Net Income EBITDA/Tonne Company Name (Mn Tonnes) Tonnes) Mn) EBITDA Margin Margin (INR Mn) A.C.C. Ltd. 22.4 20.94 80270 32.9% 20.0% 1180 Ultratech Cements Ltd. 22.0 15.86 65636 27.7% 14.9% 827 Ambuja Cements Ltd. 21.9 18.83 70770 30.0% 17.2% 969 Grasim Industries Cement Division 19.7 16.31 69947 27.3% NA 973 India Cements 10.4 9.11 35518 31.7% 11.9% 1086 Shree Cement 9.1 7.78 31800 32.5% 18% 1136

Source: Indiastat, Cement Manufacturers' Association April 2008-Jan 2009, Companies’ Annual Reports FY09

Exhibit 7 Panel A Grasim Industries Consolidated Income Statement

INR Mn FY05 FY06 FY07 FY08 FY09 Net Sales 92920 102240 140690 169730 184040 Other Income 2450 2680 3180 4630 4530 EBITDA 22720 23370 42900 54220 47830 Interest 2840 2190 2290 2220 3100 Depreciation 5560 5630 6100 6700 8660 Profit before Tax, Exceptional and 14320 15550 34510 45300 36070 Extraordinary Items Exceptional Items -1290 40 0 460 0 Profit before Tax and Extraordinary Items 13030 15590 34510 45760 36070 Current Tax 4830 4340 10970 14730 5510 Deferred Tax -410 -320 -50 -70 4410 Net Profit before Extraordinary Items 8610 11570 23590 31100 26150 Extraordinary Items 0 0 0 2360 0 Net Profir before minority Interest 8610 11570 23590 33460 26150 Less: Minority Interest -190 1160 3920 4570 4440 Plus: Share in profit/loss of associate 0 0 -4 20 160 Net Profit 8800 10410 19670 28910 21870 Source: Grasim Industries Annual Report FY09

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Exhibit 7 Panel B Grasim Industries Consolidated Balance Sheet

INR Mn FY05 FY06 FY07 FY08 FY09 Gross Fixed Assets (Incl. CWIP) 113120 119270 144810 192580 210410 Net Fixed Assets (Incl. CWIP) 62940 64110 84680 129180 142150 Investments 7690 13520 22720 16610 35630 Goodwill 19580 17730 18440 19910 20010 Deferred Tax Assets 30 40 0 0 0 Net Current Assets 6740 6520 8590 6090 9660 Total Assets 96980 101920 134430 171790 207450

Equity Share Capital 920 920 920 920 920 Other Share Capital 430 430 60 290 450 Employee Stock Options Outstanding 0 0 0 60 120 Reserves and Surplus 39470 46980 64600 90480 114180 Net Worth 40820 48330 65580 91750 115670 Minority Interest 5000 5140 8590 12690 16700 Deferred Tax Liability 11820 11620 11530 11580 15920 Loan Funds 39340 36830 48730 55770 59160 Total Liabilities 96980 101920 134430 171790 207450

Source: Grasim Industries Annual Report FY09

Exhibit 7 Panel C Grasim Industries Consolidated Cash Flow

INR Mn FY05 FY06 FY07 FY08 FY09 Cash flow from operating Activities 14229 19839 29680.6 36971.8 36129.3 Cash flow from Investing Activities -11163.4 -12975.5 -35061.1 -42315.8 -36650.5 Cash flow from financing Activities -4341.3 -6124.5 6698.7 4714.8 1715 Net Increase/Decrease in Cash/Cash Equivalents -1275.7 739 1318.2 -629.2 1193.8 Cash and Cash Equivalents at the start of the year 2910.4 1634.7 2373.7 3691.9 3062.7 Cash and Cash Equivalents at the end of the year 1634.7 2373.7 3691.9 3062.7 4256.5 Source: Grasim Industries Annual Report FY09, Bloomberg Accessed: 25/11/2017

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Exhibit 8 Performance of Grasim’s Cement Division

Unit FY08 FY09 %Change Grey Cement Installed Capacity Million Tonnes Per Annum 16.75 19.65 17% Production Million Tonnes 15.36 16.32 6% Sales Volume Million Tonnes 15.54 16.54 6% Average Realisation INR/Tonne 3192 3415 7%

RMC Installed Capacity Mn. Cubic Metre 5.59 6.66 19% Sales Volumes Mn. Cubic Metre 1.95 2.43 24% Average Realization INR/Cubic Metre 2731 2804 3%

White Cement Installed Capacity Tonnes Per Annum 475000 560000 18% Production Tonne 407882 441118 8% Sales Volume Tonne 396295 438394 11% Average Realization INR/Tonne 6902 7922 15%

Wall Care Putty Installed Capacity Tonnes per Annum 200000 200000 - Sales Volume Tonne 113965 159880 40% Average Realization Tonne 20143 19698 -2% Net Divisional Revenue INR Million 59218 69947 18% Divisional EBITDA INR Million 18763 19123 2% EBITDA Margin Percentage 31.70% 27.30% - Note: RMC : Ready Mix Concrete

Source: Grasim Industries Annual Report FY09

13

Exhibit 9 India Wholesale Price Index Viscose Staple Fibre (Base Year 1993-94) - Trend

195

190

185 31st October, 2009 180 Index Level: 182.3

175

170

165

160

Source: Bloomberg, Accessed 15/11/2017

Exhibit 10 Performance of Grasim’s VSF Division

Unit FY08 FY09 % Change Installed Capacity Tonnes Per Annum 333,975 333,975 - Production Tonnes 279,901 232,745 -17% Sales Volume Tonnes 269,781 238,463 -12% Net Divisional Revenue INR Million 30107 25336 -16% Average Realisation INR /Tonne 103,361 96,517 -7% EBITDA INR Million 10971 5163 -53% EBITDA Margin Percentage 36.40% 20.40% Source: Grasim industries Annual Report FY09

14

Exhibit 11 Performance of Grasim’s Chemicals Division

Unit FY08 FY09 %Change Caustic Soda - Installed Capacity Tonnes Per Annum 258,000 258,000 - - Production Tonnes 188,537 207,226 10% - Sales Volumes Tonnes 187,356 207,520 11% Net Divisional Revenue INR Million 4176 5225 25% ECU Realisation INR/Tonne 18,963 21,553 14% EBITDA INR Million 1381 1554 13% EBITDA Margin Percentage 33.1% 29.7% Source: Grasim industries Annual Report FY09

Exhibit 12 Ultratech Cement Capacity Utilization Year-on-Year comparison

FY08 FY09 %Change Installed Capacity (mtpa) Clinker 14.5 17.8 23% Cement 18.2 21.9 20% Production (mMT) Clinker 14.35 15.07 5% Cement 15.07 15.86 5% - Clinker Capacity Utilisation 99% 90% - Effective Capacity Utilisation 101% 96% Source: Ultratech Cement Annual Report 2008-09

Exhibit 13 Ultratech Sales Volume Year-on-Year comparison

FY08 FY09 %Change Sales Volume (MMT): Domestic - Cement 14.29 15.32 7% -Clinker 0.37 0.5 29% Total 14.66 15.82 8% Exports - Cement 0.73 0.48 -35% -Clinker 1.72 1.88 10% Total 2.45 2.36 -4% Total Volume 17.11 18.18 6% Source: Ultratech Cement Annual Report 2008-09

15

,2009 rd

Industries Investor Presentation, October 3 October Presentation, IndustriesInvestor

Grasim The proposed Restructuring Scheme Restructuring The proposed

Source:

16

14 Exhibit Exhibit

,2010 th

Timeline of the Restructuring Scheme Restructuring ofthe Timeline Source: Information Memorandum on Scheme of arrangement of Demerger ofDemerger25 on Samruddhi, June of of arrangement Scheme Source: Memorandum Information

17 15

Exhibit Exhibit Exhibit 16 Ultratech Post-merger projected Region-wise market share

Region Market Share North 16% West 29% East 20% South 15% All India 19% Source: RBS Ultratech Investment View 20th November, 2009

Exhibit 17 Combined Capacity of Ultratech Post-Merger with Samruddhi

Grasim's Cement Capacity Units Ultratech Combined Division Grey Cement Million Tonnes per Annum 23.1 25.8 48.9 Composite Plants No. 5 6 11 Grinding Unit No. 6 5 11 White Cement Million Tonnes per Annum 0 0.6 0.6 TPP's MW 236 268 504 RMC No. of Plants 32 36 68 Million Cubic Metre 4.99 6.76 11.75 Market Share- Grey Cement % 9% 10% 19%

Source: RBS Ultratech Investment View 20th November, 2009

18

Exhibit 18 Share price trend of Ultratech and Grasim with respect to BSE SENSEX

5th October (1st Trading day post deal announcement) 120 115 110 105 100 95 90 85 80 75 70

Ultratech Grasim S&P BSE Sensex

Note: The Index level and share prices were normalized to 100 and then the level/price was changed based on percentage change in the price or index.

Source: BSE India historical price data 2009

19

Exhibit 19 Ultratech and Grasim Analyst Recommendations before and after the Scheme announcement

Ultratech Analyst Recommendations

As of September 30th, 2009 As of November 15th, 2009 29.20% Number of Analysts: 38 27.90% Number of Analysts: 40 Share Price: INR 798.1 Share Price: INR 729.4

41.50%

53.50% 29.30% 18.60%

Buys Sells Holds Buys Holds Sells

Source: Bloomberg Analyst Recommendations, Accessed 12/11/2017

Grasim Analyst Recommendations

33.30% 27.80% As of September 30th, 2009 As of November 15th, 2009

Number of Analysts: 35 22.50% Number of Analysts: 39

Share Price: INR 2768.35 Share Price: INR 2289.25

47.50% 38.90% 30%

Buys Sells Holds Buys Holds Sells

Source: Bloomberg Analyst Recommendations, Accessed 12/11/2017

20

Exhibit 20 Indian Cement Industry Valuation Multiples

15th Nov. 2009 Ratio ACC Ambuja Grasim Ultratech USD INR Exchange Rate 46.8 EV/Tonne FY10E USD 123 153 107 101 EV/EBITDA 6.2 8.2 5.3 5.3 EBITDA Margins 30% 27% 31% 33%

Source: ALCHEMY Grasim Industries company update, October 5th, 2009

Exhibit 21 Panel A Ultratech Income Statement Forecast

INR Mn FY08 FY09 FY10E FY11E FY12E Net Revenue 55088 63831 75878 128124 152987 Cost of Sales -32549 -40644 -44786 -80170 -102096 Operating Costs -5281 -6123 -6227 -13194 -15041 EBITDA 17258 17064 24865 34760 35850 Dep & Amortization -2372 -3230 -4861 -9574 -11663 EBIT 14886 13834 20004 25186 24187 Net Interest -823.1 -1255 -2019 -3117 -2108 Other Pre-Tax Items 1007 1036 1000 1107 1117 PBT 15069.9 13615 18985 23176 23196 Tax -4994 -3844 -6265 -7648 -7654 Net Profit 10075.9 9771 12720 15528 15542 Note: The merged capacity is taken into account from Q2FY11 (1/7/2010) onwards

Source: RBS (The Royal Bank of Scotland) November 20th, 2009 Report on Ultratech “Margin Pressure to Dilute Returns”

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Exhibit 21 Panel B Ultratech Balance Sheet Forecast

INR Mn FY08 FY09 FY10E FY11E FY12E Cash and Marketable. Secs 1007 1045 1601 1975 1975 Other Current Assets 12032 12571 14128 25796 29952 Tangible Fixed Assets 47836 53130 59496 138876 136213 Other Non-Current Assets 1709 10348 10348 10355 10355 Total Assets 62584 77094 85573 177002 178495 Short Term Debt 7577 9658 2001 2002 2002 Trade and Other Current Liabilities 12786 12428 11630 20874 25549 Long Term Debt 9827 11758 16965 27349 10814 Other Non-Current Liabilities 5424 7229 7229 7229 7229 Total Liabilities 35614 41073 37825 57454 45594 Total Equity 26970 36021 47748 119548 132901 Total Liab and Shareholder Equity 62584 77094 85573 177002 178495 Net Debt 16398 20371 17365 27375 10840 Note: The merged capacity is taken into account from Q2FY11 (1/7/2010) onwards

Source: RBS (The Royal Bank of Scotland) November 20th, 2009 Report on Ultratech “Margin Pressure to Dilute Returns”

Exhibit 21 Panel C Ultratech Cash Flow Statement Forecast

INR Mn FY08 FY09 FY10E FY11E FY12E EBITDA 17258 17064 24865 34761 35850 Change in Working Capital 702.6 -1106 -2354 515.4 519.3 Net Interest -823.1 -1255 -2019 -3117 -2108 Taxes Paid -4803 -2097 -6265 -7648 -7654 Other Operating Cash Items 1483 1970 2436 3617 2608 Cash flow form OPS (1) 13818 14576 16663 28128 29215 CAPEX (2) -17989 -8500 -11227 -12784 -9000 Disposals/Acquisitions 58 202.5 0 0 0 Other Investing Cash Flow 3513 -8156 583.5 607 616.5 Cash flow from Investments -14418 -16454 -10644 -12177 -8383 Increase/Decrease in Debt 1667 3819 -2450 -10945 -16535 Dividend Paid 0 -728.2 -993.4 -1889 -2188 Other Financing Cash Flow -955.8 -1174 -2019 -2754 -2140 Cash flow from Financing Acitivities 710.8 1916 -5463 -15589 -20863 Forex and Disc Ops 0 0 0 11.5 31.7 Increase/Decrease in Cash 110.8 38 556 373.5 0.7 Equity Free Cash Flows (1+2) -4171 6076 5436 15344 20215 Note: The merged capacity is taken into account from Q2FY11 (1/7/2010) onwards

Source: RBS (The Royal Bank of Scotland) November, 2009 Report on Ultratech “Margin Pressure to Dilute Returns

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Exhibit 22 Relative Multiples for VSF/Man-made fibre industry

Forward Forward EV/EBITDA T12M (15th Nov, EV/EBITDA EV/EBITDA Ticker Name 2009) FY10 FY11 ZF IN Equity ZENITH FIBRES LTD 1.04 1.17 1.26 ICNT IN Equity INDO COUNT INDUSTRIES LTD 9.62 11.29 7.38 ARVND IN Equity ARVIND LTD 10.16 6.99 6.33 SUTJ IN Equity SUTLEJ TEXTILES AND INDUSTRI 3.10 6.62 3.43 RAMCO IN Equity RAMCO INDUSTRIES LTD 6.98 6.61 5.44 SINT IN Equity SINTEX INDUSTRIES LTD 8.26 7.33 5.45 JBF IN Equity JBF INDUSTRIES LTD 4.23 4.55 2.55 Median 6.98 6.62 5.44 Source: Bloomberg, Accessed 11/11/2017

Zenith Fibres Ltd: Manufacturer of Polypropylene Staple Fibre used in wall coverings, Geo-textiles, Construction industry, Domestic Flooring and Chemicals sector.

Indo Count Industries Limited: Manufacturer of Combed Cotton Yarn and bed linen. Providing utility and fashion bedding solutions.

Arvind Ltd: Manufacturer of Cotton, Modal, Tencel, Excel, Viscose Fibre, Bemberg, Lycra, Silk, Linen, Polyester and Nylon. Providing woven and knits fabrics solutions.

Sutlej Textiles: One of the biggest producers of spun dyed yarn in India. Manufacturer of value added yarns such as cotton and cotton blended dyed and mélange yarns, Modal, Lyocell and Tencel. Sutlej also provided home textile solutions such as Curtains and Upholstery.

Ramco Industries Ltd: Ramco produced high quality combed cotton yarn, green building materials and cement fibre sheets. Ramco was known for Ramco Hilux Calcium Silicate Board, a versatile building material.

Sintex Industries Ltd: Sintex was into textiles and yarns business. Sintex manufactured combed cotton yarn, metallic yarn, silk yarn, mélange yarn, linen, modal, nylon-viscose and cupro.

JBF Industries Ltd: JBF was a leading polyester value chain company. JBF produced Polyester chips, Bottle grade pet, partially oriented yarn, fully drawn yarn and polyester textured yarn.

Source: Companies’ Annual Reports, Company website

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Exhibit 23 Grasim Industries Key Divisional Projections

INR Million Samruddhi Cement FY10E Net Debt 21250 PAT 13972

VSF Division EBITDA 12763 Net Debt 1466

Other Investments Current Market Value (INR 25812 Mn) as of Nov 15th, 2009

Source: Edelweiss “Merger a Structural Positive for Ultratech” Report, November 15th, 2009. Deutsche Bank- Ultratech Cement Company Alert, 16th November, 2009.

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Endnotes

1 “Kumar Birla Shares his big Lessons: It is good to Analyse Failures” Rediff.com Business, June 1st, 2005 2 “Grasim to demerge Cement Business” Grasim media press release, October 3rd, 2009. 3 “Grasim Industries Annual Report” FY09 p.10 4 “Cement History” – Understanding Cement Article on www.understanding-cement.com, 2009 5 Ashwini Damani (June 8th, 2017) “Understanding how the Cement Industry Works” – Alpha Invesco 6 “Human Resource and Skill Requirements in the Construction Material and Building Hardware” Report, 2009, p. 9 7 “Month-Wise Production of Cement in India” Indiastat 2009 8 “Plant/Location/State-wise Performance of Cement Companies in India” (2008-2009), Indiastat 2009 9 Report of the working Group on Cement for the 11th Five year plan, Planning Commission of India, New Delhi. 2007 10 State/Plant-wise capacity, installed capacity, production and dispatches of cement in India, Indiastat 2009 11 Month-wise cement and clinker Export in India, Indiastat 2009 12 “Human Resource and Skill Requirements in the Construction Material and Building Hardware”Report 2009,p. 55 13 Mineral Commodities Summaries 2009, United States Geological Survey 14 Report of the working Group on Cement for the 11th Five year plan, Planning Commission of India, New Delhi. 2007 15 Globalcement.com, Defining the trend: Cement Consumption vs GDP article 29th May, 2014. 16 “Key Points” Section Equitymaster Cement Industry analysis, July 10, 2009. 17 “Prospects” Section Equitymaster Cement Industry analysis, July 10, 2009. 18 “Financial Year’09 and Prospects” Section Equitymaster Cement Industry analysis, July 10, 2009. 19 Ashwini Damani (June 8th, 2017) “Understanding how the Cement Industry Works” – Alpha Invesco 20 “The Chairman’s Letter to Shareholders” Grasim Industries Annual Report FY09 p. 1 21 “Management Discussion and Analysis” Grasim Industries Annual Report FY09 p. 8-10 22 “Performance Review” Grasim Industries Annual Report FY09 p. 10-13 23 Information Memorandum on Scheme of arrangement of Demerger of Samruddhi, June 25th, 2010 24 Investor Presentation, Grasim Industries Limited, October 3rd, 2009. 25 Mr. Kumar Mangalam Birla, Grasim media press release, October 3rd, 2009 26 “Grasim to demerge Cement Business” Grasim media press release, October 3rd, 2009. 27 Information Memorandum on Scheme of arrangement of Demerger of Samruddhi, June 25th, 2010.

28 Investing Aggressively to Improve Cost Efficiencies - “Ultratech: Margin Pressure to dilute Returns” RBS Report 30th November, 2009. 29 ACC Ltd. Annual Report FY09 p. 24 30 ACC Ltd. Annual Report FY09 p. 21-22 31 Ambuja Cements Ltd. Annual report FY09 p.17 32 Ambuja Cements Ltd. Annual report FY09 p. 7,19 33 “Ultratech: Margin Pressure to dilute Returns” RBS Report 30th November, 2009. 34 Ultratech Annual Report FY09 p. 1

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20. Ambuja Cement Ltd, 2009, Ambuja Cement Ltd Annual Report FY09. http://www.ambujacement.com/Upload/PDF/Annual-Repor-2009.pdf. Accessed: 05/08/2017 21. Products, Zenith Fibres Limited. http://www.zenithfibres.com/products.php. Accessed: 18/11/2017 22. Products Section, Indo Count Industries Limited, http://www.indocount.com/our-products. Accessed: 18/11/2017 23. “Divisions” Arvind Ltd. http://www.arvind.com/division/arvindbrands.htm. Accessed: 18/11/2017 24. “Products Section” Sutlej Textiles Ltd. http://sutlejtextiles.com/yarn.php Accessed: 18/11/2017 25. “Products” Ramco Industries Ltd. http://www.ramcoindltd.com/ramco_hicem.html. Accessed: 18/11/2017 26. “What we Do” Sintex Industries Ltd. http://www.sintex.in/what-we-do/products/. Accessed: 18/11/2017 27. “Products” JBF industries Ltd. http://www.jbfindia.com/product.htm. Accessed: 18/11/2017

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