Hyderabad-based cement maker Penna Cement Industries Ltd has filed its draft red herring prospectus with the capital markets regulator to float an initial public offering (IPO).
The proposed IPO size is Rs 1,550 crore ($185 million at current exchange rates), show documents filed with the Securities and Exchange Board of India (SEBI).
The offer comprises a fresh sale of shares worth Rs 1,300 crore besides a secondary market sale of shares worth Rs 250 crore by the promoter entity, PR Cement Holdings Ltd.
Penna will join peer Emami Cement Ltd, part of the diversified Emami Group, in going public. Emami Cment filed for an IPO last month and is awaiting SEBI’s approval.
Nearly three dozen small and big cement firms are listed on the Indian stock exchanges. Aditya Birla Group firm UltraTech Cement Ltd is India’s largest cement maker by installed capacity as well as by market capitalisation.
India’s cement sector has witnessed heightened deal activity owing to consolidation in the space. The sector had been going through a slowdown over the past few years because of oversupply.
That may change as incremental demand is likely to outpace incremental supply over the next three years owing to the government’s focus on housing and infrastructure as well as the waning impact of demonetisation, goods and services tax and the Real Estate Regulation Act, ratings firm CRISIL Ltd said in a recent report.
UltraTech said in May that it would buy the cement business of Century Textiles & Industries Ltd in a stock deal. The merger would take UltraTech’s cement capacity to 109.9 million tonnes per year. The deal received Competition Commission of India (CCI) clearance in August.
In June, UltraTech submitted its revised resolution plan to the National Company Law Tribunal’s Kolkata bench to acquire debt-laden cement firm Binani Cement after getting approval from the latter's committee of creditors.
Private equity major Blackstone Group and Singapore state investor Temasek Holdings are in separate talks to pick up 15-20% stake in Wonder Cement Ltd for Rs 1,000 crore, The Economic Times reported last week.
The total IPO size is Rs 1,550 crore ($185 million). The company will issue fresh shares worth Rs 1,300 crore besides a secondary market sale of shares worth Rs 250 crore by the promoter entity, PR Cement Holdings Ltd.
Use of proceeds
The company has proposed to use Rs 1,000 crore of the fresh net proceeds to repay or make advance payment of its debt besides using an undisclosed amount towards general corporate purposes.
The proceeds from the offer for sale will go to the selling shareholder after accounting for taxes and issue expenses.
Edelweiss Financial Services, IIFL Holdings, JM Financial and Yes Securities (India) are the merchant bankers arranging the share sale.
Cyril Amarchand Mangaldas is the legal advisor to the company.
Khaitan & Co and Squire Patton Boggs Singapore LLP are the India and international legal counsel to the merchant bankers respectively.
Incorporated in October 1991, Penna Cement is one of the largest privately-held cement firms besides being among the leading players in south India.
The company has four manufacturing facilities and two grinding units in states such as Andhra Pradesh, Telangana, and Maharashtra. It boasts of an aggregate production capacity of 10 million tonnes per annum (MPTA) as on June 2018.
Penna Cement is looking to increase its capacity to 16.5 MPTA by integrating its manufacturing facilities and extensive distribution network to successfully expand its business in the west and east India markets, besides expanding into north, central and other east India markets through a phased expansion plan.
The company’s manufacturing facilities are also located in close proximity to captive limestone mines.
Its cement products include ordinary portland cement (OPC), portland pozzolana cement (PPC) and portland slag cement (PSC). The company sells and markets its products under the Penna brand.
Penna has a distribution network comprising 3,492 dealers and distributors across India as on 30 September 2018.
Some of the company’s key clients include large infrastructure and real estate companies such as Larsen & Toubro, Aparna Enterprises, JMC Projects (India), Brigade Enterprises, Gannon Dunkerley and Co, Shobha, Visaka Industries and Puravankara.
Penna Cement reported consolidated net profit of Rs 12.09 crore for three months ended June 2018 on revenue (from operations) of Rs 456.55 crore.
The company’s net profit for the financial year 2017-18 stood at Rs 156.66 crore on revenue of Rs 1,839.83 crore.
Its net profit in fiscal 2016-17 was Rs 181.57 crore on revenue of Rs 1,880.33 crore.
The company’s total consolidated debt stood at Rs 1,938.31 crore as of September 2018.