Jaiprakash to sell two MP cement plants to Ultratech for Rs 5,400 cr

Buy to raise UltraTech's capacity to 65 mt a year

Jaiprakash Associates completed its divestment programme aimed at cutting debt with the sale of two cement plants in Madhya Pradesh to UltraTech Cement for Rs 5,400 crore on Tuesday. The company has in total divested assets worth over Rs 20,000 crore.

The Madhya Pradesh plants include two captive power plants. In September last year, Jaiprakash sold its cement plant in Gujarat to the Aditya Birla group company for an enterprise value (that is, including the unit’s debt) of Rs 3,800 crore. The transaction comprised an integrated unit in Sewagram and a grinding unit in Wanakbori with a combined capacity of 4.8 million tonnes (mt) a year. UltraTech is India’s largest cement maker. The deal will push the company’s India capacity to 65 mt a year. Switzerland’s Holcim, operating through ACC and Ambuja Cements in the country, has a capacity of about 57 mt a year. UltraTech has plans to take its capacity to 71 mtpa by 2016.

In a statement on Tuesday, Manoj Gaur, executive chairman, Jaiprakash Associates, said: “With this disinvestment, Jaiprakash Associates’ major disinvestment plans get rested and the focus will now shift to innovative operational efficiencies to match with the best in class, coinciding with the imminent revival of the Indian economy.”

The board of directors of the company met on Tuesday to approve a memorandum of understanding with UltraTech for the Madhya Pradesh plants. The deal includes clinker capacity of 2.1 mt a year and cement-grinding capacity of 2.6 mt a year in Bela along with a captive power plant of 25 Mw. Another 3.1 mt of clinker capacity and 2.3 mt of cement-grinding capacity in Sidhi will also be sold along with a 155-Mw captive power plant.

UltraTech said its board had approved the MoU. O P Puranmalka, business director, UltraTech, told Business Standard, “At these two units, the clinker capacity is more than the grinding capacity. This gives us room to further add around 1.8-2.5 mt a year of cement manufacturing by having an adjacent grinding unit. The enterprise value for a tonne for this deal is roughly around $140 (about Rs 8,900 at Tuesday’s exchange rate).”

At $140, the deal compares well with the prevailing valuations in the 360-mt-a-year cement industry. Rather, the replacement cost of a cement plant comes around $125 (about Rs 7,900) a tonne. Currently, the average enterprise value is about $160 a tonne.

The deal will help UltraTech strengthen business in central India. Experts see demand growing eight per cent in 2014-15 from five per cent in the past few years. Analysts said since the deal would only make add to the size of the biggest company, the deal would need to be cleared by the Competition Commission of India.

On the BSE, UltraTech closed at Rs 2,539.60 apiece, up a percentage point,  and Jaiprakash Associates at Rs 23.45, down nearly three per cent, on Tuesday.

Despite last year’s divestment, Jaiprakash Associates’ stand-alone debt was Rs 28,164 crore at the end of 2013-14. The company’s interest cost almost doubled to Rs 6,094 crore for 2013-2014 from Rs 3,134 crore a year earlier.

In September this year, sister company Jaiprakash Power Ventures (JVPL) sold two hydroelectric power plants to JSW Energy for Rs 9,700 crore.

The Sajjan Jindal-led power producer deferred a decision to buy another 500-Mw thermal power plant from JPVL, because of uncertainty on coal linkage for the project.