Livemint: December, 2014
Mumbai: UltraTech Cement Ltd has agreed to buy two cement plants and related power assets of Jaiprakash Associates Ltd in Madhya Pradesh for Rs.5,400 crore, giving the country’s biggest cement maker the capacity to cater to lucrative markets in the central Indian state and neighbouring Uttar Pradesh.
As part of the deal, the Aditya Birla Group firm will acquire Jaiprakash Associates’ integrated cement plant with clinker capacity of 2.1 million tonnes per annum (mtpa) and cement grinding capacity of 2.6 mtpa at Bela in Madhya Pradesh. UltraTech will also acquire a second plant at Sidhi with a clinker capacity of 3.1 mtpa and cement grinding capacity of 2.3 mtpa. The cement factories have captive thermal power plants with a combined capacity of 180 megawatts (MW) of which 25MW is situated at Bela and 155MW at Sidhi.
“The assets are located in a strategically important region. The Satna cluster is an important one for us and an area where we did not have a presence. The proximity of the plants to key markets, like Uttar Pradesh central and east (and) Madhya Pradesh central and east, makes it an important asset,” said O.P. Puranmalka, who leads the Aditya Birla Group’s cement business and is the business director of UltraTech Cement.
The transaction, which is subject to due diligence, definitive agreements and regulatory approvals, will strengthen UltraTech’s position as the country’s biggest cement maker and comes at a time when India’s economic growth is poised to accelerate and the Narendra Modi government has said that it may increase public spending to improve the nation’s crumbling infrastructure, boosting demand for cement.
With this acquisition, UltraTech’s cement capacity in India will increase from 60 mtpa to 65 mtpa. The capacity will stand raised to 71 mtpa by 2016 once projects under implementation are completed.
“This is a very good move by UltraTech and will strengthen the company’s position in the central and eastern market, and more importantly, the acquisition is happening at a time when Holcim is not expanding and has been very inactive in the past few months,” said Anil Singhvi, chairman of Ican Investment Advisors Pvt. Ltd, and former managing director of Ambuja Cements Ltd. Holcim Ltd is the parent company of Ambuja Cements and ACC Ltd.
So it is really advantageous for UltraTech to expand at this time, Singhvi added.
“If we look at the industry right now, UltraTech seems like the only big player that can really choose and pick assets and acquire them at favourable valuations,” he said.
The challenge before this acquisition spree may be obtaining clearances from the Competition Commission of India, as the firm’s capacity is increasing, according to Singhvi. These assets are strategic and have a great value in terms of location and access to markets, he said.
Shares of UltraTech Cement gained 0.61% to Rs.2,533.25 on Tuesday on BSE, while the exchange’s benchmark Sensex lost 0.71% to 27,506.46 points. The announcement came after market hours.
For Jaypee Group, the sale of these cement units will help it pare its debt. Jaypee Group has a total debt of Rs.60,000 crore.
The valuation works out to $140 a tonne and this is a binding memorandum of understanding but due diligence is still to be done, Puranmalka said.
The transaction valuation demonstrates the quality of assets, said Manoj Gaur, executive chairman of Jaypee Group. Axis Capital Ltd advised Jaypee Group in the transaction.
Gaur reiterated Jaypee Group’s resolve to reduce its debt to improve shareholder value.
With this sale, the group has sold assets worth more than Rs.20,000 crore and will shift its focus to “innovative operational efficiencies to match with the best in class, coinciding with the imminent revival of the Indian economy”, he said.
Last year, UltraTech had agreed to buy a Jaiprakash cement plant in Gujarat with 4.8 mtpa of capacity for Rs.3,800 crore, including debt.
On 9 December, Mint had reported that UltraTech was re-evaluating its decision to bid for the Brazilian assets of Holcim SA and would rather focus on expanding its domestic cement production. In India, UltraTech expects to scale up its capacity to 70 mtpa by early 2016 from 62 mtpa, Aditya Birla Group chairman Kumar Mangalam Birla told shareholders at the company’s annual general meeting in August.