JSW Cement enters race to acquire promoter stake in Orient Cement

Aditya Birla and Adani groups have been aggressively acquiring cement firms to expand their manufacturing units, JSW has not also entered the race

Sajjan Jindal-led JSW Cement is evaluating the acquisition of the promoter stake in Orient Cement Ltd (OCL) from CK Birla, according to a report by The Economic Times. This news comes amid a wave of consolidation in the cement sector that has seen Aditya Birla, parent of UltraTech Cement, and Adani groups aggressively acquire assets across the country.

Negotiations with Adani and Ultratech have been delayed due to valuation issues and environmental clearance of key limestone mines. This delay has provided an opportunity for JSW Cement to enter the fray.

Ultratech Cement and Adani’s cement arm, which includes ACC and Ambuja Cement, are the two largest manufacturers of cement in the country, in terms of capacity. Recent acquisitions include Adani’s acquisition of Penna Cement and Ultratech’s majority control in India Cements.

Acquiring promoter stake in OCL

JSW Cement’s interest in OCL, which has an 8.5 million tons per annum (MTPA) capacity, introduces a third contender in the race, following Aditya Birla and Adani groups. Both have been in discussions with CK Birla since late last year when JP Morgan initiated the sale process. This follows a similar high-stakes competition in 2022 for Holcim’s India assets, which Adani eventually acquired for $6.5 billion, making it the second-largest player in India’s building-materials industry.

The promoter stake in OCL, held by the Birla family and private investment vehicles, is 37.9 per cent. An acquisition will trigger an open offer for an additional 26 per cent stake from minority shareholders. OCL’s shares have surged 56 per cent in anticipation of a sale, with the total transaction for the 63.9 per cent stake estimated to be as much as Rs 4,546.54 crore, given the current market value of Rs 7,115.09 crore.

OCL’s manufacturing units are located in Telangana, Maharashtra, and Karnataka, supplying to 11 states across Central, Western, and Southern India. A significant portion of its sales comes from Maharashtra and Telangana. The company plans to invest Rs 1,000 crore in capital expenditure for the current fiscal year, focusing on expansions in Telangana and Karnataka.

OCL’s valuation is expected to exceed $110-112 EV per ton, translating to a market cap of around Rs 8,100 crore. The company is nearly debt-free, with a debt-to-equity ratio of just 0.07 as of FY24. It achieved 81 per cent utilisation in Q4, with a significant focus on premium cement sales, which grew from 14 per cent to 22 per cent of total volume in FY24.

JSW Cement expansion  plans

An acquisition of OCL would aid JSW Cement’s plan to list its cement business next year through a reverse merger. This acquisition would also help JSW Cement increase its capacity to 26 MTPA by FY26 and 50 MTPA by 2030, in line with its aggressive expansion plans.

JSW Cement has also been exploring other acquisitions, such as Heidelburg’s India assets, Penna, and India Cement. Orient Cement's medium-scale assets have been on JSW’s radar, with efforts intensifying following the India Cements transaction.