UltraTech to acquire two cement units from Jaiprakash Associates for $853M

UltraTech Cement Ltd has struck a deal to acquire two units of Jaiprakash Associates Ltd located in Madhya Pradesh at an enterprise valuation of Rs 5,400 crore ($853 million). The deal will help UltraTech, the single-largest cement firm in the country in terms of capacity, to consolidate its lead over Swiss construction materials giant Holcim, which controls Ambuja Cements and ACC, two of the top four cement firms in the country.

The deal involves acquisition of an integrated cement unit with clinker capacity of 2.1 million tonnes per annum (mtpa) and cement grinding capacity of 2.6 mtpa at Bela in Madhya Pradesh. The other unit has clinker capacity of 3.1 mtpa with cement grinding capacity of 2.3 mtpa at Sidhi in the same state. The deal would also involve transfer of 25 MW power capacity at Bela and 155 MW capacity at Sidhi.

It would augment its capacity at Satna cluster, one of the major cement manufacturing regions of the country.

UltraTech said synergies and the surplus clinker capacity would allow it to add another 1.8-2.5 mtpa capacity with this acquisition in addition to the 4.9 mtpa which comes with the deal.

It would take UltraTech's existing capacity from around 60 mtpa to around 65 mtpa.

This would also allow it to at least match and possibly be a tad bigger than the combined capacity of Holcim and Lafarge in India as the two global giants complete the global merger.

UltraTech is also raising its capacity further organically which would take it to around 71 mtpa level by 2016.

Holcim, through its two large cement firms together, has capacity of around 57-58 mtpa in India. Lafarge has capacity of around 11 mtpa. However, Holcim-Lafarge combine may have to sell some assets in India to satisfy competition concerns.

Last year UltraTech had acquired two units of Jaypee Cement (a part of Jaiprakash Associates) with 4.8 mtpa capacity located in Gujarat at an enterprise valuation of Rs 3,812 crore ($590 million).

The latest transaction comes at a huge premium to that deal, which was struck at $124 per tonne against the latest deal where UltraTech is paying $174 a tonne. But this corresponds to a similar rise in stock market valuations of large cement makers in the country.

Ahead of a formal announcement of the deal, UltraTech Cement scrip rose 0.6 per cent to close at Rs 2,533.25 a share in a weak Mumbai market on Tuesday. Jaiprakash Associates' scrip declined 2.9 per cent.

Axis Capital was the transaction advisor for the deal to Jaiprakash Associates.

What it means for Jaiprakash

Diversified firm Jaiprakash Associates has been looking to pare assets as part of the strategy of the debt-laden firm to deleverage the balance sheet.

While Jaiprakash remains the third-largest cement manufacturer in the country with cement capacity of 22 mtpa, it has cut its size by more than a third since last year.

While it sold assets in Gujarat to UltraTech last year, more recently it signed a deal with Shree Cement Ltd to sell a cement grinding unit with capacity of 1.5 mtpa located at Panipat in Haryana for Rs 360 crore (around $60 million).

It also sold its entire 74 per cent holding in Bokaro Jaypee Cement Ltd (BoJCL), its JV with Steel Authority of India Ltd (SAIL), for Rs 667.56 crore ($109 million) to Dalmia Cement (Bharat). This unit has capacity of 2.1 mtpa. 

Jaypee Group had been selling other assets too and recently signed a deal to sell two of the three hydroelectric projects of Jaiprakash Power Ventures Ltd (JPVL) in Himachal Pradesh to Sajjan Jindal-led JSW Energy at an enterprise value of about Rs 9,700 crore (approximately $1.57 billion), in one of the biggest infrastructure M&A deals in the country to date.

(Edited by Joby Puthuparampil Johnson)

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