Irish building materials group CRH Plc. on Tuesday announced it has entered negotiations with Jaypee Cement Corporation for buying an equity stake in Jaypee’s Gujarat cement business. The plant in question is the company’s 3.6-million-tonne clinker plant at Kutch in Gujarat, with a cement grinding capacity of 2.4 million tonnes, the company said in its release.
“The completion of any transaction would be subject to satisfactory due diligence, the approval of the respective Boards and the granting of the required regulatory approvals,” it said in the release.
VCCircle had reported on Monday about the development and that both the companies have signed a non binding agreement related to the equity stake.
Jaypee is the third largest cement producer in India with an annual capacity of 28.8 mtpa, a market capitalisation in excess of Rs 166.4 billion (€2.45 billion) and a turnover of more than Rs 138.3 billion (€2.03 billion).
CRH is a FTSE 100 diversified building materials group which manufactures and distributes building material products in 36 countries at 3,600 operating locations. Headquartered in Ireland and employing over 79,000 people worldwide, CRH achieved sales revenue in excess of €18bn in 2011. CRH entered the Indian market in 2008 through a joint-venture with My Home Industries Limited, a leading cement manufacturer in the southern State of Andhra Pradesh.
Sources said CRH is looking to shell out close to $165-180 per tonne for the two plants located in Gujarat, each having capacity of 2.4 million tonnes. But, analysts tracking the cement sector are sceptical on the valuations of the proposed deal. The deal will value the Gujarat assets at as much as Rs 4,750 crore ($864 million). Earlier a report in The Economic Times had pegged the deal value at $160/tonne.
An analyst tracking the company said on condition of anonymity, “Jaypee Cements has been looking to sell off this asset for last 5-6 months though we believe they have not yet closed the deal. They are looking to sell the Gujarat asset but it not clear whether they want to sell their Andhra Pradesh units as well.”
Jaiprakash Associates had demerged its Andhra Pradesh and Gujarat cement units in November and merged them into the cement subsidiary called Jaypee Cements, which is building a three-million-tonne unit in Karnataka. CRH is also looking to include the upcoming Karnataka asset as part of the deal.
Analysts say the deal is to deleverage the balance sheet of Jaypee Cements. One source said only the Gujarat units are on the block as the other plants are located in a region where there is overcapacity. Cement industry is regional in nature with demand largely being met by plants within the region.
With over capacity flooding the southern region of the country and other zones, analysts say Andhra Pradesh has become a difficult market for transactions. All the cement players are running their capacities at less than 70 per cent capacity utilisation levels, thus putting a question mark on the inclusion of the AP asset in the deal.
(Edited by Prem Udayabhanu)