UltraTech Cement, a part of the Aditya Birla Group, has agreed to acquire two integrated cement plants from the debt-laden Jaiprakash Associates for an enterprise value of R5,400 crore, the two firms said in a statement issued on Monday evening.
The plants, which have a combined capacity of 4.9 million tonnes per annum (mtpa), are located at Bela and Sidhi in Madhya Pradesh. These cement plants will help UltraTech gain a pan-India footprint as before this acquisition it did not have a presence in the Satna cluster of Madhya Pradesh, which supplies cement to regions like central and eastern Uttar Pradesh and Bihar.
With this acquisition, UltraTech has achieved a domestic cement capacity of 65 mtpa and extended its lead over the Holcim Group, which has a combined capacity of 60.1 mtpa in India through its two subsidiaries ACC and Ambuja.
OP Puranmalka, managing director and chief executive of UltraTech, told FE that the company was yet to complete the due diligence process for the assets it proposes to buy. Granular details of the deal, including what portion of debt associated with the cement plants it would absorb and the cash component, would be worked out later. But at the enterprise value ascribed to the deal, the enterprise value per tonne of cement made by these two assets works out to around $140, Puranmalka said. UltraTech has also taken into account the replacement cost of setting up a greenfield cement plant of the same capacity while arriving at the enterprise value of the current deal.
Puranmalka said that since UltraTech did not have a presence in the Satna belt before this deal, it didn’t anticipate any hurdles with respect to India’s competition laws while completing the transaction.
The two cement plants being sold by Jaiprakash Associates also come with clinker capacities that can help UltraTech augment its cement making capacity in this region by another 1.8-2.5 mtpa, Puranmalka said. UltraTech will consider building a greenfield cement grinding unit or acquire one in the region for this purpose, he added.
Jaiprakash Associates’ cement plants also come with a captive power plant of 180 MW.
The Kumar Mangalam Birla-led UltraTech has been one of the most aggressive cement makers in India in terms of capacity creation over the last decade (FY05-FY14), adding nearly 30 mt in this period. Its aggregate production capacity prior to this acquisition stood at 63.4 mt per year, including overseas capacity of 3.2 mt.
This is the second time that UltraTech has bought cement making assets from Jaiprakash Associates. In September 2013, UltraTech purchased two cement plants in Gujarat with a capacity of 4.8 mtpa from the Manoj Gaur-led Jaypee Group (of which Jaiprakash Associates is a part) for an enterprise value of R3,800 crore.
The current deal under consideration between the two entities is more expensive than the earlier one, though the capacities involved in both cases are similar.
The enterprise value per tonne of cement capacity acquired by the Aditya Birla Group firm was $120-130 per tonne.
UltraTech, which has a strong balance sheet and steady operating cash flows, is currently in the midst of massive Rs 10,000-crore capex plan through which it aims to further increase its cement capacity by 6 mtpa by FY16 end and invest in associated infrastructure and power plants.
As on September 30, UltraTech had consolidated net debt of Rs 5,560 crore, including the debt associated with the cement plants acquired from the Jaypee Group in September.
For the Jaypee Group, this would be the fourth such cement asset sale in little over a year. Jaypee Group is looking to sell assets, including cement and power plants, to pare the hefty debt burden on its books. The aggregate debt of the group stands at around Rs 55,000 crore. The company has already divested assets worth Rs 15,000 crore, but the impact of these asset sales is yet to reflect on the group’s balance sheet. It aims to cut down debt further by around Rs 10,000 crore by end of this fiscal.
