Jaypee to sell Guj cement units to UltraTech at lower valuation: Sources

Jaiprakash may get about Rs 4,000 cr from the sale of its cement units

After months of negotiations, Manoj Gaur's Jaiprakash Associates is close to selling its Gujarat-based cement units to Birla's UltraTech Cement at a far lower valuation than what it sought when it started the talks early this year.

According to insiders, the cement units are to be sold at a valuation of $130 a tonne, compared to $160 a tonne it was seeking earlier. Jaiprakash, which is sitting on a mountain of debt, was expected to get around Rs 4,500 crore from the sale of its cement units, but now it will get a tad below Rs 4,000 crore, said a banker. The only consolation for Jaypee is that since early this year, the Indian currency has lost close to 20 per cent of its value against the dollar which will add to its kitty.

The Gujarat units have a capacity of 4.8 million tonnes annually (mtpa) and will help Ultratech increase its presence in western India. A Birla spokesperson did not reply to an email. Jaypee Group Chairman Manoj Gaur did not respond to text messages.

Of Jaiprakash's total debt of Rs 24,337 crore as on March this year, ICICI Bank, State Bank of India and IDBI Bank have the highest exposure and are nudging the company to sell its cement units to cut debt. According to analysts, the high leverage in Jaiprakash was bleeding the company of its revenues as almost 60 per cent of the firm's Ebitda (earnings before interest, tax, and depreciation) was being used to pay interest costs. Analysts have been warning that a worsening of margins could lead to a situation in which Jaiprakash might struggle to cover its interest costs.

Jaiprakash shares are trading at Rs 35.70 apiece, just a notch above its all-time low of Rs 28. Since January this year, the company has lost 64 per cent of its value, thus reflecting investors' discomfort with high debt and falling sales. Its suitor UltraTech's stock dipped 20 per cent to Rs 1,605 a share on Monday. Analysts say as debt on Gujarat units are around Rs 2,500 crore, the ensuing debt reduction by sale of assets will lead to a 13-21 per cent rise in the FY14 and F15 earnings per share estimates of Jaiprakash. "But more importantly, it would likely restore the market's faith in management, thus having disproportionate impact on stock price," writes Akshay Soni of Morgan Stanley, in a report dated July 30.

Apart from rising debt, Jaypee is gearing up to sell its cement units as costs are going up quite substantially for cement companies. In the recent quarter, most cement companies incurred higher fuel cost while currency depreciation offset the sharp decline in coal costs.