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A day after striking the mega deal, shares of Jaiprakash Associates tanked 12 per cent on Thursday, with investors saying the company had foregone the premium attached to its Gujarat cement plant which was sold to UltraTech Cement for Rs 3,800 crore.
Jaypee Cement Corporation, which owns two cement plants with a total capacity of 9.8 million tonnes a year (mtpa) in Gujarat and Andhra Pradesh, is a wholly owned subsidiary of Jaiprakash Associates.
The 4.8-mtpa integrated Gujarat plant has a cement bag manufacturing unit of three lakh bags a day.
Daljeet S. Kohli, Head of Research, IndiaNivesh Research, said though the deal is fairly valued, Jaiprakash Associates has missed out on additional value attached with the surplus land, limestone mine and operational jetty.
Difficult times’ toll
“Clearly, JP could have realised at least Rs 1,000 crore more from the sale, if not for the difficult times faced by the cement sector and pressure building up on its debt of about Rs 60,000 crore,” he said.
Moreover, he added, JP Associates’ stocks have rallied 30 per cent in the last 10 days on hopes that the much-delayed deal would finally come through.
“So, the market trend of ‘sell on news, buy on rumours’ came into play, pulling down the stock,” he said.
The deal is expected to be completed in the next seven to nine months after obtaining the statutory approvals from the Court and the Competition Commission of India.
ULTRATECH UP
Meanwhile, shares of UltraTech Cement were up a marginal 1 per cent at Rs 1,751.
Though the cement industry is passing through tough times with industry production capacity exceeding demand, UltraTech expects the situation to improve in the coming days.
O.P. Puranmalka, Whole-time Director, UltraTech Cement, said the deal would provide a strong foothold in the vibrant Gujarat market. In fact, he added, the capacity utilisation of 95 per cent registered by the company’s existing Saurashtra unit ranks among the highest across all regions.
Cement demand has slowed to 3.3 per cent in the first quarter of this fiscal and is expected to be in the same region in the September quarter. However, he said, it would pick up from the second half with a revival in rural markets after a good monsoon and spending related to the general elections.
“We are looking at the deal on the long-term (basis). We believe cement demand to cross the 8 per cent mark once the economy starts improving,” he said.
>suresh.iyengar@thehindu.co.in
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