The Chennai-based Shriram Group, a financial services conglomerate is in advanced talks with global private equity (PE) majors Citigroup Venture Capital and Blackstone to raise Rs 538 crore ($100 million) for its cement business, Sree Jayajothi Cements.
Senior Shriram Group officials confirmed they were in “wide-ranging talks” with various PE players to raise this sum for deployment in the cement company, which it acquired in February 2012.
The officials added they were taking a “strategic view” of the cement sector and is in the process of preparing a blueprint to see how they can grow the company.
Besides talking to PE funds, Shriram group might also have had discussions with global cement majors such as Italcementi Group, Holcim and CRH for a strategic partnership, according to investment bankers in the know of the development.
The Rs 60,000-crore Shriram Group’s foray into the capex-heavy cement sector was accidental. Sree Jayajothi Cements had owed dues to the tune of Rs 500 crore towards Shriram group’s engineering, procurement and construction company, Shriram EPC.
When the Andhra Pradesh-based cement firm delayed the payment, Shriram decided to convert part of the dues, about Rs 300 crore, into 51 per cent equity in Sree Jayajothi Cements, which was later increased to 70 per cent.
“We had an option of converting the dues into equity if Sree Jayajothi Cements delayed the payment beyond a point. The company delayed the payment for a long time, so we decided to convert the dues to equity in February 2012,” says a Shriram Group official.
Sree Jayajothi Cements’ manufacturing facility is at Yanakandala village near Banganapalli in Kurnool district of Andhra Pradesh. It has a combined clinkerisation capacity of two million tonnes per annum (mtpa) and cement grinding capacity of 3.2 mtpa.
Sree Jayajothi Cements belongs to the Jayajothi Group based at Rajapalayam, Tamil Nadu, promoted by T R Kannan and his family. Jayajothi Group is a part of the Jayavilas Group, which has business interests in textiles with a capacity of 200,000 spindles, and has presence across sectors such as public transportation, education and windmill. The group has annual revenue of around Rs 400 crore.
Shriram EPC’s immediate focus will be on increasing the capacity utilisation of Sree Jayajothi at the Andhra Pradesh plant from 30 per cent to 60 per cent. The 3.2-mtpa capacity has been facing working capital constraints and talks are on to resolve this.
Shriram EPC has a debt of Rs 1,500 crore on a top line of Rs 1,300 crore. The company provides end-to-end engineering solutions such as multi-disciplinary design, EPC (engineering, procurement and construction), and project management services. The company is focused on providing turnkey solutions for ferrous and non-ferrous, cement, aluminium, copper and thermal power plants, water treatment and transmission, renewable energy, cooling towers, and material handling.