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Following the deal with Jaiprakash Associates to acquire 18.40 million tonne per annum (mtpa) cement capacity, UltraTech is set to become one of the top five cement producers in the world.
Post sale, the Jaypee Group will retain about 6 million of installed capacity, which includes 2.1 million at Bhilai, Chhattisgarh, and 1.5 million at Rewa, Madhya Pradesh.
It will own another 3 million tonnes in JCCL in southern India. Bhilai Cement is a 74:26 joint venture with Steel Authority of India.
Commenting on the transaction, Manoj Gaur, Executive Chairman, Jaiprakash Associates, said in a statement: “On a proactive basis, we had taken concrete steps to divest two cement plants in Madhya Pradesh in January 2015, but for reasons not attributable to the company, this divestment could not take place.
“This is a matter of great concern as this affects even a group like us, which is proactively pursuing the process of deleveraging through disinvestment.”
In the given situation, he added, it is now considered appropriate to divest a significant portion of total cement capacity in favour of a company which is not only India’s largest, but would also be the first cement company to achieve the coveted 100 mtpa mark.
Lower valuationJaiprakash Associates has agreed to a lower valuation this time around in a bid to ward off stress from the debt pile.
In an earlier 5 mtpa deal, UltraTech was supposed to pay $160 a tonne but now it has been negotiated down to $110 a tonne for 22.4 mtpa.
The Jaypee Group firm holds debt of ₹31,000 crore.
However, it is not clear whether the new deal will be cleared by the Competition Commission of India (CCI), as UltraTech Cement will end up adding significant capacity in a particular region.
The cement sector is seeing consolidation as companies find it tough to sustain business. Recently, Reliance Infrastructure sold its cement unit to Birla Corp for ₹4,800 crore.
Earlier, Lafarge, which is globally merging with Holcim, had put 5mtpa capacity in the eastern States on the block. But the deal was hit by the MMDR Act, and the company now plans to sell its entire 11mtpa capacity.
Future dealsVikram Dhawan, Director, Equentis Capital, said though the valuation of the UltraTech deal is lower due to a debt reducing exercise, it could have an impact on future deals in the cement space, which has turned out to be a buyer’s market with sustained low demand and excess capacity built over the year.
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