UltraTech in talks to buy Jaypee’s cement assets in Himachal

 

Mumbai: UltraTech Cement Ltd, India’s largest cement maker, is in talks to buy the Jaypee Group’s cement assets in Solan, Himachal Pradesh, for about Rs.4,000 crore, two people directly involved with the deal said, only a few months after it bought the debt-laden group’s cement plant in Gujarat.

 

Two European companies were also in the race to buy the Solan assets—a grinding and blending unit and a cement plant—but the talks did not work out, one of the two people, a senior executive at one of the companies, said.

 

 

The other person is a banker. Both of them requested anonymity because the talks are still at a preliminary stage.

 

“Acquiring cement plants is the main strategy UltraTech is adopting to increase their domestic capacity,” the senior executive said, adding that senior executives at both the companies have been meeting regularly and a decision will be made in four-six months.

 

UltraTech and Jaypee did not reply to emails sent on Wednesday.

 

The deal-in-the-making is as much a reflection of the consolidation-prone nature of the cement industry as it is of Jaypee’s efforts to cut the debt on its books by selling assets, in part or wholly.

Loaded with debt, several Indian conglomerates, mostly in infrastructure businesses, are looking to sell some of their assets. The list of such groups includes the GMR Group, the Lanco Group, and the Jaypee Group.

 

 

 

UltraTech, the flagship company of the Aditya Birla Group, in September announced it had agreed to buy the Gujarat cement-making unit of Jaypee Cement, a subsidiary of debt-laden Jaiprakash Associates Ltd, for Rs.3,800 crore in stock and assumed debt.

 

After buying Japyee’s plant in Gujarat on India’s west, UltraTech is scouting for cement assets in the northern and eastern states, the senior executive said. The company will not consider buying assets in South India as the plants there are running at less than 60% of their capacity because of low demand, he added.

 

  

 

UltraTech’s cement manufacturing capacity increased to 59 million tonnes per annum (mtpa), from 54 mtpa earlier, after it bought Jaypee’s Gujarat plant. The company aims to increase its capacity to 70 mtpa by 2015, Kailash Birla, senior executive president and chief financial officer, UltraTech, had said while announcing the acquisition in Gujarat.

 

The Solan assets, if acquired, will add another 4 mtpa of capacity. The grinding and blending unit and the cement plant in consideration have capacities of 2 mtpa each.

 

“UltraTech’s intention of buying the assets is solely with the vision to enter a market (North India) where they do not have much presence. Along with the assets, the deal could also get them access to limestone reserves and new markets,” said Nitin Bhasin, an analyst at Ambit Capital Pvt. Ltd tracking industrial infrastructure, cement, and engineering and construction.

 

“For Jaypee, it is beneficial since the proceeds will give them some lifeline to tackle the debt. So the deal is in the right direction for both the companies if it happens,” Bhasin said.

 

UltraTech is comfortably leveraged and is generating enough cash flows to finance the acquisition, the senior executive mentioned earlier said. The company had a debt of Rs.4,400 crore as on 30 September, according to data from corporate information provider CapitaLine. Its net debt-equity ratio was 0.3.

 

For Jaypee, the deal will be another effort towards trimming its huge debt. The company has been on an asset-selling spree lately. In a July press release, Jaypee Associates said that “on consolidated basis, the group’s debt as on 31 March, 2013, was at Rs.53,000 crore”.

 

In May 2013, the Jaypee Group sold 300 acres of land in Greater Noida to realty firm Gaursons India Ltd for Rs.1,500 crore. On 21 December, Mint reported that the group was close to selling two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC for at least $1.5 billion (Rs.9,345 crore today).

 

 

 

 

Cement companies in India are struggling to cope with sluggish demand. UltraTech last month warned that the outlook for India’s cement industry remains challenging, after it reported a 38.5% fall in profit for the December quarter.

 

In fiscal 2013, the Indian cement industry saw a lot of consolidation with deals adding up to around $3.3 billion, according to a January report by India Ratings and Research Pvt. Ltd. The agency expects the consolidation to continue in fiscal 2015 due to regional imbalances and cost inflations.

 

 

 

“Possible targets include companies which have cost-effective access to raw materials and energy or a locational advantage to optimize freight costs while accessing to markets. Also, cement facilities belonging to business groups may be available for sale, to the extent some of this business groups may make efforts to pare their debt levels,” India Ratings said in its report.

Rahul kumar gupta

PGDM,1st Year

Source:-Mint