CK Birla group firm Orient Cement Ltd has struck twin deals with Jaiprakash Associates Ltd to buy its majority stake in a joint venture with Steel Authority of India Ltd (SAIL) and a grinding unit from another group firm to expand to other regions.
It has inked a deal to acquire Jaiprakash’s 74% stake in its JV, Bhilai Jaypee Cement Ltd, for an enterprise value of Rs 1,450 crore. Separately, it has struck an agreement to buy Nigrie Cement Grinding unit from Jaiprakash Power Ventures Ltd for an enterprise value of Rs 500 crore.
CK Birla, chairman of the CK Birla Group, said the deal to acquire a 74% stake in Bhilai Jaypee Cement is a significant step towards accomplishing the mission of reaching a capacity of 15 million tonnes per annum (MTPA) by 2020. “The assets proposed to be acquired will also add a new and strong dimension towards diversifying our market reach and helping Orient Cement to further sweat its existing assets,” he said.
Currently, OCL primarily caters to Maharashtra, Andhra Pradesh, Telangana and Karnataka with more than 80% of sales coming from these markets. The acquisitions will help it expand its footprint by catering to the markets of Chhattisgarh, Madhya Pradesh, Odisha, Bihar, Jharkhand, and Uttar Pradesh.
The transaction will be funded through a mix of internal accruals, debt and equity funding. The twin transactions are expected to complete in the first half of 2017.
Orient Cement is a part of the CK Birla Group with presence across technology, automotive, home and building, healthcare and education sectors.
Moelis & Company is the financial adviser while Cyril Amarchand Mangaldas is the legal counsel to Orient Cement for this transaction.
Bhilai Jaypee Cement
The larger of the two deals involves the acquisition of an asset comprising cement capacity of 2.2 MTPA consisting of a clinkerisation unit in Satna area in Madhya Pradesh and a grinding unit in Bhilai, Chhattisgarh.
The acquisition will take Orient Cement’s total capacity to 10.2 MTPA, and provide entry into the high growth central and eastern regions. It said that the firm will also benefit from BJCL’s access to limestone reserves and other raw materials including slag. Orient Cement currently has 8 MTPA of cement manufacturing capacity across three units in the states of Telangana, Maharashtra and Karnataka.
The Nigrie unit in Singrauli area of Madhya Pradesh is a cement grinding unit with a capacity of 2 MTPA. This grinding unit is located close to the end markets in Bihar, Jharkhand and Eastern UP.
Deepak Khetrapal, MD & CEO of Orient Cement, said: “Nigrie grinding unit is a very good fit for our expansion and market-diversification strategy. Its close proximity to the growing markets, and the availability of power, fly-ash and the infrastructure of the adjoining super thermal power plant of JPVL provides us an opportunity to reach these markets very efficiently.”
Cement deals under limelight
The cement industry has recorded a string of M&As in the last three to four years as consolidation play gathered pace and this year alone a number of transactions have been announced.
LafargeHolcim agreed to sell Lafarge India Pvt Ltd to Nirma Ltd for $1.4 billion (Rs 9,400 crore) including debt, in a deal that will complete the India leg of the global merger of French cement giant Lafarge and Swiss building materials group Holcim. The deal is part of the company's 3.5 billion Swiss franc ($3.6 billion) divestment programme and is essential for completing the global merger announced last year between Lafarge and Holcim.
Jaiprakash Associates that has been selling assets to reduce debt pile, also finalised a deal to sell nearly two-thirds of its cement business to UltraTech Cement Ltd, in a development that gave it a breather in its attempt to stave off creditors seeking to take over control of the firm.
The two companies agreed to amend a previously announced deal, which is now valued at Rs 16,189 crore ($2.4 billion) including debt. The two companies had signed a preliminary pact worth Rs 16,500 crore at the end of February and a revised deal valued at Rs 15,900 crore at the end of March.
In February, Reliance Infrastructure Ltd said it has agreed to sell its cement unit to Birla Corp for Rs 4,800 crore ($710 million), as the company led by billionaire Anil Ambani-led strives to pare debt and shifts focus to the defence manufacturing business. The deal for Reliance Cement Company Pvt. Ltd came after Birla Corp’s proposed acquisition of two cement plants of Lafarge India fell through due to regulatory issues.
The deal was struck at $140 a tonne, much higher than what Orient is now paying for the latest deal ($99 a tonne).
Like this report? Sign up for our daily newsletter to get our top reports.