Mumbai, Sept. 11: UltraTech Cement Ltd, the Aditya Birla group company, is acquiring the Gujarat cement unit of Jaypee Cement Corporation Ltd (JCCL) for an enterprise value of Rs 3,800 crore.
JCCL is a wholly owned subsidiary of Jaiprakash Associates Ltd.
Negotiations dragged on for more than a year before the two sides could hammer out a deal.
Under the terms of the deal, UltraTech Cement will acquire both the assets and liabilities of the Gujarat cement plant, which has a capacity of 4.8 million tonnes a year.
The acquisition will take the total capacity of UltraTech Cement to 59 million tonnes. At Rs 3,800 crore, the deal values the cement unit at an enterprise value of $124 per tonne.
However, a large part of the transaction comprises the Rs 3,650-crore debt that lurks in the books of the Gujarat plant. The unit owes Rs 2,000 crore to banks and has another Rs 1,650 crore worth of “related party debt”.
The remaining consideration of Rs 150 crore will be paid in the form of equity shares of UltraTech Cement to the shareholders of JCCL.
A.V. Birla group chairman Kumar Mangalam Birla told reporters here that the transaction was expected to close in seven to nine months. UltraTech Cement will look to double the capacity of the new asset that it has purchased. Birla added that the acquisition also included land and mining reserves that would help to double capacity.
According to the UltraTech Cement chief, the company went ahead with this purchase as it had a relatively lower capacity build-up in Gujarat, an important location, both for the export markets and in the western region as well.
Further, the Gujarat market has been growing at 11.7 per cent over the last seven years, which necessitates a good presence in that state.
Birla said the group had added 21 million tonnes in cement capacity since 2005 and was now looking to raise capacity by another 10 million tonnes. This will be commissioned over the next three years. By early 2016, the group’s total cement capacity will rise to 70 million tonnes.
Birla said the deal would be financed through a 50:50 combination of internal accruals and debt.
The Rs 22,890.14-crore cement maker reported borrowings of only Rs 5,408.54 crore in the year ended March 31.
The transaction also includes a 57.5 megawatt coal-based thermal power plant, limestone reserves for over 90 years at current capacity and a captive jetty at Sewagram.
“Besides giving us a stronger production base in Gujarat to serve the local market, it will bolster our coastal footprint enabling us to cater to other regions of India and exports,” added O.P. Puranmalka, whole-time director of the company.
Meanwhile, the debt levels at Jaiprakash Associates Ltd will come down by 15 per cent following the transaction, Manoj Gaur, executive chairman of Jaiprakash Associates, said while addressing a separate press conference in the capital today.
Gaur told reporters in Delhi that the Jaiprakash group had a total debt of Rs 55,000 crore and was aiming to reduce it by Rs 15,000 crore this year.
He refused to say whether the group was in negotiations for the sale of any other assets.
Analysts said the transaction was a win-win for both the parties since it would help UltraTech increase its presence in the western region, while helping Jaiprakash Associates to trim its debt levels.
They said the Birlas had been able to force the Gaurs to bring down their asking price by cutting the enterprise value of the deal to $124 a tonne from $160 a tonne.
In May, private equity fund Barings had purchased a 14 per cent stake in Lafarge India at an enterprise value of $230 a tonne.
With JCCL selling its Gujarat unit to UltraTech, the spotlight has now turned on its Andhra Pradesh plant. There is speculation that it could also be divested shortly.