Sagar Cements to sell its stake in JV to Vicat

The deal is valued at Rs 435 crore, over five times of Sagar's equity investment in the JV - Vicat Sagar Cement Private Limited

Hyderabad-based Sagar Cements Limited has decided to sell its entire 47 per cent stake in the joint-venture Vicat Sagar Cement Private Limited to its French partner at a total price of Rs 435 crore, over five times of its equity investment.

The board of directors on Tuesday approved the sale of its entire stake of 65.23 million shares of Rs 10 face value held in the JV to Parficim S A S, France, an affiliate of Vicat S A, France, for the above consideration. The acquisition of its stake by the JV partner works out at Rs 66.68 per equity share, Sagar Cements informed the BSE today.

Sagar Cements and Vicat Group had entered into a JV in June 2008 with an objective of setting up a 5.5 million tonne cement plant at Gulbarga in Karnataka. In the first phase, the JV set up a 2.75-million tonne capacity plant, which commenced production in January 2013.  

Post stake purchase, Vicat will own 100 per cent of Vicat Sagar. The cement major already owns a 51 per cent stake in Bharathi Cement, which operates a 5-mn tonne   cement plant in Kadapa district of Andhra Pradesh.

Sagar’s contribution to the first phase was Rs 86 crore, according to the company. The deal, cleared by both the sides, will fetch a price of around $150 per tonne capacity to Sagar Cements and is considered to be a good premium compared with some of the recent transactions concluded in India. For instance, the Ultratech-Jaypee deal is said to have concluded at a price of $124 per tonne capacity.

“This transaction will enable both Vicat and Sagar to better focus on their own strengths and strategies. We wish Vicat the best in all its endeavours,” said Srikanth Reddy, executive director, Sagar Cements.

The transaction was the result of a strategic decision taken by both the entities to enable each one focus on its own strengths and capabilities to create value and drive growth, the company maintained. The deal is expected to be completed by September this year.

Sagar Cements, which owns a similar capacity plant at Matampally in Nalgonda district of Telangana state, proposes to utilise sale proceeds partly towards purchase of capital equipment for the existing plant. The remaining sum will be deployed to fund organic and inorganic growth with the objective of playing a larger role in the cement industry in south India, the release said.

The move to exit the JV comes on the back of Sagar's plans to double its own cement manufacturing capacity to 5.5 million tonnes by having a plant in Andhra Pradesh.  With this, the company aims to gain better access and closer proximity to all the important markets in south India, according to industry observers.

Sagar Cements reported a net loss of Rs 25.58 crore on a total income of Rs 488.93 crore in the year ended March, 2014 due to lower capacity utilisation owing to subdued demand for cement in the undivided AP.  Its scrip, however, rose over 170 per cent from Rs 131.25 in February, 2014 to Rs 365 on Tuesday in anticipation of the financial gain coming out of the deal. The promoters'’group holds 52 per cent in the company.

On Wednesday, the company shares jumped 4.72 per cent to close at Rs 353 per share on the BSE.