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Shriram Group's Rs 400-cr PE plan to bind its cement foray

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Shriram Group, the Rs 50,000-crore diversified Chennai-headquartered conglomerate, is understood to be firming up a strategic plan to consolidate its presence in the cement sector. Shriram EPC, a publicly held company of Shriram Group, recently entered the cement sector by acquiring majority stake in Andhra Pradesh-based cement manufacturer Sree Jayajothi Cements Ltd.

According to senior officials of the Shriram Group, they are taking a strategic view of this sector and a blueprint is being prepared to see how they can grow in this sector.

As a first step, which controls Sree Jayajothi Cements, is raising Rs 400 crore through the private equity (PE) route for deployment in the cement firm.

Senior officials of confirmed that they were in wide ranging talks with various PE players to raise this sum for deployment in the cement company. Investment bankers also indicated the group may have had discussions with Italcementi Group for a strategic partnership. However, Shriram Group officials denied any such discussions.

Shriram's foray into this capex heavy sector was the fallout of a large amount of dues from the cement firm.

“We had an option of converting this into equity if they delayed the payment beyond a point. They had been delaying the payment for a long time, so we decided to convert the dues to equity in February 2012,” a Shriram Group official said.

The company’s cement manufacturing facility is at Yanakandala village near Banaganapalli 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.

According to Shriram Group officials, the total dues were Rs 500 crore and the converted portion around Rs 300 crore. After conversion, Shriram EPC, along with other group companies, would control 51 per cent stake, while the rest will be held by the promoters of Sree Jayajothi Cements.

Sree Jayajothi Cements belongs to the Jayajothi Group based at Rajapalayam, Tamil Nadu, promoted by and his family.

Jayajothi Group is a part of the Jayavilas Group, which has business interests in textiles with capacity of 200,000 spindles, and has presence across sectors such as public transportation, education and windmill businesses.

The group has overall annual revenue of around Rs 400 crore.

PRIVATE EQUITY RAISED BY SHRIRAM GROUP
  Investors Amount ($mn) Date
Shriram Retail Holdings TPG Capital 120 Sep-08
Shriram Transport Finance TPG Newbridge 100 Sep-05
Shriram City Union Finance ChrysCapital, ICICI Venture,
Bessemer, Asiabridge
65 Apr-08
Shriram City Union Finance ChrysCapital, CPIM Funds,
Merrill Lynch Real Estate
43 Nov-06
Shriram City Union Finance Norwest 25 Jul-09
Shriram Transport Finance ChrysCapital 13 Feb-05
Shriram City Union Finance Norwest 3 Aug-09
Shriram Transport Finance Reliance Capital 1 Jun-04
Shriram Transport Finance FMO 1 Oct-04
Source: Venture Intelligence

Shriram EPC’s immediate focus will be on increasing the capacity utilisation of Sree Jayajothi’s manufacturing capacity at the Andhra Pradesh plant from 30 per cent to 60 per cent in six-eight months. The 3.2-million tonne capacity has been facing some working capital constraints and talks are on to resolve this.

Shriram EPC has debt of around Rs 1,500 crore on a top line of Rs 1,300 crore. It provides end-to-end solutions in engineering: Multi-disciplinary design, engineering, procurement, construction and project management services. Shriram EPC is focused on providing turnkey solutions for ferrous & non-ferrous, cement, aluminium, copper and thermal power plants; water treatment & transmission; renewable energy; cooling towers & material handling.

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