 "JP deal positions UltraTech as largest cement player: All you need to know")
The Aditya Birla Group’s UltraTech Cement will acquire Gujarat cement unit of Delhi-based Jaypee Cement for Rs 3,800 crore, in a move that will help the latter pare its debt by 15 percent. The valuation, however, fell from Rs 4,300 crore earlier following a downturn in the economy and concerns over a mine owned by Jaypee, said media reports.
The acquisition comprises of an integrated cement unit at Sewagram and a grinding unit at Wanakbori in Gujarat. The combined capacity of both the divisions of the Gujarat unit is 4.8 mtpa with a 57.5 MW coal-based thermal power plant, limestone reserves for over 90 years at current capacity and a captive jetty at Sewagram.
[caption id=“attachment_1103437” align=“alignleft” width=“380”]  Reuters[/caption]
With the huge limestone reserves, the Birlas hope to double the capacity at the Gujarat unit in the near future, and according to UltraTech Cement Chairman Kumar Mangalam Birla the transaction will be value accretive in the next three years.
Here are the top ten things you must know about the deal:
1. The deal will further cement UltraTech’s numero uno position in the market and give it an entry into Gujarat. UltraTech’s installed capacity in India post this expansion has increased to 56 million tonne and it will go up to 67 million tone over the next two years driven by its ongoing expansions in Chhattisgarh, Karnataka and Rajasthan, the company said in its presentation to shareholders.
“With this acquisition of 4.8 million tonne capacity, our installed capacity will increase to 59 million tonnes per annum, which will go up to 70 million tonnes by 2015, thus further strengthening our market leadership,” UltraTech Cement Chairman Kumar Mangalam Birla said while announcing the deal.
Impact Shorts
More ShortsGujarat is also strategically well located from the point of view of exports.
The grinding units of JP Associates will help the company cut its logistics expenses due to proximity to key markets.
2. The Birla takeover is a lifeline for infrastructure major Jaypee Group. Jaypee Cement (JCCL) is a wholly owned subsidiary of Jaiprakash Associates. For the Jaypee Group, the deal will help pare a portion of its Rs 55,000 crore debt.
Jaypee Group said the sale of the Gujarat cement plant will reduce its debt by Rs 3,600 crore in the current financial year itself.
“JP Associates’ debt will come down by around Rs 3,600 crore from the existing Rs 23,000 crore,” Jaypee Group Chairman Manoj Gaur told CNBC-TV18, adding that the group’s total debt currently stands at Rs 55,000 crore. “We are targeting to reduce debt by Rs 15,000 crore this fiscal,” Gaur said.
3. UltraTech Cement expects savings of nearly Rs 40 core a year from synergies. It has an existing plant in Saurashtra and now with acquired assets of JCCL in Kutch, synergistic benefits will increase on increased coastal and clinker movement. With 5500 hectares of land and 500MT of mining reserves adequate for 90 years, the company expects to save costs in the medium to long term from this plant.
4. Half of the transaction will be funded by UltraTech by using its funds; the rest will be raised from banks. Birla said the acquisition will be funded through equity of Rs 150 crore, debt worth Rs 2,000 crore and the remainder of Rs 1,650 crore through internal accruals. Jaypee Cement had Rs 350 crore of carry forward losses.
5. Jaiprakash Asssociates expects to close the deal in the next 7-9 months after statutory approvals including those from the court and the CCI (Competition Commission of India).
6. The Gujarat operation consists of a 3.6 million tonne clinker plant at Kutch with 2.4 mn tonnes of cement grinding capacity and a further grinding plant in eastern Gujarat with capacity to produce 2.4 mn ton per annum and a 57.5 MW captive power plant.
7. After the transaction, the Jaypee Group’s cement capacity will come down to 33 million tonnes and it will continue to be the third-largest cement manufacturer in the country after Aditya Birla group and Holcim group.
8. UltraTech will take over the Rs 3,650-crore loan of Jaypee’s Gujarat unit and transfer to it Rs 150 crore worth of shares once the transaction is completed.
9. According to a Kotak report, the deal is being done at a valuation of $124 per tonne as against present current replacement cost of $140-145 per tonne for a 1Mt cement plant. Rhe valuation is comparable to the $133 per tonne that Ambuja Cements is estimated to be paying for a stake in ACC’s units.
10. The deal would give UltraTech Cement a significant presence in the key western Indian markets as well as access to a jetty that would enable it to ship cement to new markets.
Shares of UltraTech rose 1.37 percent at Rs 1,756 and JP Associates in down 7 percent at Rs 40.45. The Sensex is down 0.5 percent at 19,894.
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