Birla buys Jaypee's Gujarat cement unit for Rs 3,800 cr

Non-cash deal to help Jaypee group lower its debt by 15%

In its biggest acquisition in two years, Aditya Birla Group has acquired Jaypee Group's cement unit in Gujarat, including debt, for Rs 3,800 crore.

According to the non-cash deal, UltraTech will take over the Rs 3,650-crore loan of Jaypee's Gujarat unit and transfer to it Rs 150 crore worth of shares once the transaction is completed. The valuation of the unit fell from Rs 4,300 crore earlier following an economic downturn and concerns over a mine owned by Jaypee.

The deal, to be completed in nine months, will increase the gap between UltraTech, already the largest cement company in India, and the Holcim group. While UltraTech's capacity will increase by five million tonnes per annum (mtpa) to 59 mtpa, it is setting up another 10 mtpa capacity by 2016. Holcim, on the other hand, plans to add around eight mtpa by 2015, which will take the combined capacity of its two group companies - Ambuja Cement and ACC - to 65 mtpa.

Addressing a media conference here on Wednesday, Aditya Birla Group Chairman Kumar Mangalam Birla said the deal would give the company a significant presence in the key western Indian markets. UltraTech had lost volumes after the disposal of Shree Digvijay Cement; the acquired volume would help it support coastal movement in the Mumbai, Kochi, Mangalore and Sri Lanka markets, Birla said.

"The plants will help us increase our presence in the Gujarat market, where we did not have much presence after the sale of Digvijay Cement. Besides, the units come with a sizeable land and mining reserves which can support doubling of the capacity," Birla said.

For the heavily-indebted Jaypee group, the Birla takeover is a lifeline deal, as it will reduce its debt by close to Rs 3,650 crore.

Jaypee Group Executive Chairman Manoj Gaur said in New Delhi that the deal would bring down the group's overall debt by about Rs 3,600 crore, from Rs 56,000 crore as of August. "This is part of our plan to reduce the debt by Rs 15,000 crore this financial year. Even after the divestment, our cement capacity would be 32.8 million tonnes and our status among top three cement manufacturers in the country would stay intact," he said.

The transaction had valued the cement unit capacity at $124 per tonne, which was equal to the replacement cost of a similar plant, Birla said. This is when compared with the $133 a tonne Ambuja is paying to acquire ACC's units.

Half of the transaction will be funded by UltraTech by using its funds; the rest will be raised from banks.

The combined capacity of both the divisions of the Gujarat unit is 4.8 mtpa of cement with 57.5 Mw coal-based thermal power plant, limestone reserves for over 90 years at the current capacity and a captive jetty at Sewagram.

"Despite the prevailing muted growth of the industry, we believe the long-term fundamentals and growth prospects remain intact. We will add more capacities in coming years," Birla said. "If necessary, we can double the capacity of this unit," he added.

Birla said the group will ask banks to bring down the interest cost that was bleeding the Jaypee group. "We expect the interest costs to come down by 300 basis points, with the loans getting transferred to Ultratech," he said. Expecting a deal, JP Associates stock on Wednesday rose 6.24 per cent during the day to Rs 43.40 a share, while the UltraTech scrip gained 1.7 per cent to Rs 1,732 on BSE. The transaction was announced after market hours.

UltraTech Whole-time Director O P Puranmalka said, besides giving his company a stronger production base in Gujarat to serve the local market, "the transaction will also help us realise logistics gains and be value-accretive in the medium term".

The proposed transaction is subject to the approval of shareholders and creditors, sanction of high courts and approval of the Competition Commission of India, besides other statutory approvals. "We anticipate the transaction to close in seven to nine months," he said.

According to a research by Mumbai-based Credit Analysis & Research, cement consumption is expected to see a compound annual growth rate of 7.9 per cent in the three years to 2016, led by demand from power and road projects. In the three years to March 31 this year, demand has grown 5.6 per cent, data show. Standard Chartered Plc advised both UltraTech and Jaypee on the deal.
BIRLA's SHOPPING CART

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2013: Ultratech buys Jaypee's Gujarat cement units for Rs 3,800 cr