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Shree Cement to acquire Jaiprakash Associates cement unit for Rs360 crore

Livemint:  August, 2014

Mumbai: Shree Cement Ltd has agreed to buy the 1.5 million tonnes (mt) cement grinding unit of Jaiprakash Associates Ltd, at Panipat, Haryana, for Rs.360 crore.

The cost of acquisition is subject to adjustment for any indebtedness and net working capital taken over as of the closing date, Shree Cement said in a statement to the stock exchanges on Monday. The acquisition is also subject to satisfactory completion of due diligence and obtaining necessary approval and consent, Shree Cement said.

The cement industry in India has seen consolidation in recent years.

The Jaypee Group is selling most of its cement assets to reduce its debt of Rs.60,000 crore. In September 2013, Jaypee sold its Gujarat cement plant to UltraTech Cement Ltd for Rs.3,800 crore. In March, Jaypee sold its 74% stake in a cement joint venture with Steel Authority of India Ltd (SAIL) in Jharkand to Dalmia Bharat Ltd for about Rs.690 crore.

Monday’s announcement was made after market hours.

Shares of Shree Cement fell 1.25% to Rs.7,939 on BSE, while Jaiprakash Associates fell 0.1% to Rs.51.80. India’s benchmark Sensex rose 0.07% to close at 26,437.02 points.

Limited reserves of key raw materials such as limestone in the country will lead to companies acquiring existing assets, analysts say. The only option for manufacturers to get access to this raw material, especially in north India, is through consolidation and acquisition.

According to a May report by Barclays Research, north India has only 16% of India’s total limestone resources compared with 50% concentrated in the south. The brokerage expects further consolidation to take place due to high entry barriers At present, Shree Cement has a capacity of 17.5 million tonnes per annum (mtpa), with plants at Beawar, Ras, Khushkhera, Jobner (Jaipur) and Suratgarh in Rajasthan, Laksar (Roorkee) in Uttarakhand and Aurangabad in Bihar.

The firm reported a 2.5% drop in net profit for the three months ended 30 June from a year ago, it said in a separate statement. The drop in profit was mainly on account of higher raw material costs and increase in freight charges.

Net profit fell to Rs.277 crore in the June quarter from Rs.284.31 crore in the year-ago period. Net sales increased 14% to Rs.1,656.72 crore in the reporting quarter.

In the quarter, the company commissioned a 2 mtpa grinding unit each at Bangur City in Rajasthan and Aurangabad in Bihar.