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Shriram EPC Ltd, part of the $9 billion Shriram Group, has decided to sell its entire stake in Sree Jayajothi Cements Limited (SJCL) to My Home Industries Limited, a 50:50 joint venture between Ireland-based CRH Plc and Hyderabad-based My Home Group for around Rs 1,400 crore.
However, the exit for Shriram EPC is not going to be a profitable one. The stake sale includes original SJCL's promoter T R Kannan's stake.
Hours after Shriram EPC announced that it has concluded the deal, which considered to be one of the larger recent M&A deals in the Indian cement sector, Shriram EPC gained 14% on Monday Morning.
However, T Shivaraman, managing director and chief executive officer, Shriram EPC said, “it is not going to be a profitable exit for Shriram EPC”.
While speaking to Business Standard he declined to quantify the loss, however he said, “it is going to be quite large”.
Shriram EPC has an exposure to the tune of Rs 700 crore, inclusive of debt, equity and others. It may be noted, in 2012, Shriram EPC and its group company acquired majority stake in SJCL after converting latter's outstanding to equity. This acquisition was an entry for the Shriram Group into cement business.
According to Shivaraman, cement is a long-term business and given the current political scenario in Andhra Pradesh and other market related issues short-term looks challenging, so Shriram decided to exit from the business. He noted, the company was also planning to raise private equity, “but at the current environment that is also difficult”. It may be noted, the company was earlier planning to raise around Rs 400 crore to support the business and to expand its capacity.
“This (the cement business) has been a distraction for Shriram EPC's management, since we have to manage operations, debt and others of SJCL which was consuming lot of time,” said Shivaraman.
The proceeds from this transaction will be used primarily towards debt reduction in-line with the SEPC's goal of improving its financial profile and strengthening its core business, he said. Company's core business, which is EPC is well placed for growth and has got order backlog of over Rs 4,000 crore, said Shivaraman.
This transaction will also result in the release of debt on SEPC's book which was undertaken on behalf of SJCL.
According to Shivaraman, current debt exposure is around Rs 2,000 crore and post this transaction it will come down by around Rs 550 crore for Shiram EPC, which was holding around 68% along with its group company, in SJCL.
The company is waiting for certain approval from the banks and has set a target to conclude the deal by end of this month.
Set up in 2006, SJCL has cement manufacturing facilities at Kurnool, Andhra Pradesh with a capacity of 3.2 million tonnes per annum. The acquisition will further strengthen MHIL's position in the South Indian cement market.
Rameswar Rao J, Chairman, My Home Industries Ltd commented that this acquisition will allow the company to expand its market base and achieve its growth plan to take its total cement capacity to 8.4 million tonnes per annum.
At present the company runs with a capacity of 60% and it was reported that the company got approvals for mining in areas with a resource of around 80 million limestone and additional approvals for further 180 million tonne are expected.
In 2012, Shriram EPC and its group company have converted SJCL's outstanding of Rs 352 crore into equity. The two entities – Shriram EPC and Spark Environmental Technology Ltd – together hold 68%, while the balance 32% remained with the original promoter Kannan.
SJCL belongs to the Jayajothi Group based at Rajapalayam, Tamil Nadu, promoted by T R Kannan and his family. Jayajothi Group is a part of Jayavilas Group, one of the reputed groups of South India which has business interest in textiles with an existing capacity of 200,000 spindles and has presence across sectors such as public transportation, education and windmill business.
MHIL, a cement major with a total capacity of 5.2 MTPA got units in Nalgonda District along with the Grinding Unit in Vizag, Andhra Pradesh. In 2008, CRH Plc, a leading international building materials company acquired 50% stake in My Home Industries Ltd.
CRH, a FTSE 100 and Fortune 500 company is a diversified building materials group which manufactures and distributes a diverse range of building material products. CRH employs approximately 76,000 people at 3,500 operating locations in 35 countries with 2012 sales revenue in excess of €18.5 billion.
However, the exit for Shriram EPC is not going to be a profitable one. The stake sale includes original SJCL's promoter T R Kannan's stake.
Hours after Shriram EPC announced that it has concluded the deal, which considered to be one of the larger recent M&A deals in the Indian cement sector, Shriram EPC gained 14% on Monday Morning.
However, T Shivaraman, managing director and chief executive officer, Shriram EPC said, “it is not going to be a profitable exit for Shriram EPC”.
While speaking to Business Standard he declined to quantify the loss, however he said, “it is going to be quite large”.
Shriram EPC has an exposure to the tune of Rs 700 crore, inclusive of debt, equity and others. It may be noted, in 2012, Shriram EPC and its group company acquired majority stake in SJCL after converting latter's outstanding to equity. This acquisition was an entry for the Shriram Group into cement business.
According to Shivaraman, cement is a long-term business and given the current political scenario in Andhra Pradesh and other market related issues short-term looks challenging, so Shriram decided to exit from the business. He noted, the company was also planning to raise private equity, “but at the current environment that is also difficult”. It may be noted, the company was earlier planning to raise around Rs 400 crore to support the business and to expand its capacity.
“This (the cement business) has been a distraction for Shriram EPC's management, since we have to manage operations, debt and others of SJCL which was consuming lot of time,” said Shivaraman.
The proceeds from this transaction will be used primarily towards debt reduction in-line with the SEPC's goal of improving its financial profile and strengthening its core business, he said. Company's core business, which is EPC is well placed for growth and has got order backlog of over Rs 4,000 crore, said Shivaraman.
This transaction will also result in the release of debt on SEPC's book which was undertaken on behalf of SJCL.
According to Shivaraman, current debt exposure is around Rs 2,000 crore and post this transaction it will come down by around Rs 550 crore for Shiram EPC, which was holding around 68% along with its group company, in SJCL.
The company is waiting for certain approval from the banks and has set a target to conclude the deal by end of this month.
Set up in 2006, SJCL has cement manufacturing facilities at Kurnool, Andhra Pradesh with a capacity of 3.2 million tonnes per annum. The acquisition will further strengthen MHIL's position in the South Indian cement market.
Rameswar Rao J, Chairman, My Home Industries Ltd commented that this acquisition will allow the company to expand its market base and achieve its growth plan to take its total cement capacity to 8.4 million tonnes per annum.
At present the company runs with a capacity of 60% and it was reported that the company got approvals for mining in areas with a resource of around 80 million limestone and additional approvals for further 180 million tonne are expected.
In 2012, Shriram EPC and its group company have converted SJCL's outstanding of Rs 352 crore into equity. The two entities – Shriram EPC and Spark Environmental Technology Ltd – together hold 68%, while the balance 32% remained with the original promoter Kannan.
SJCL belongs to the Jayajothi Group based at Rajapalayam, Tamil Nadu, promoted by T R Kannan and his family. Jayajothi Group is a part of Jayavilas Group, one of the reputed groups of South India which has business interest in textiles with an existing capacity of 200,000 spindles and has presence across sectors such as public transportation, education and windmill business.
MHIL, a cement major with a total capacity of 5.2 MTPA got units in Nalgonda District along with the Grinding Unit in Vizag, Andhra Pradesh. In 2008, CRH Plc, a leading international building materials company acquired 50% stake in My Home Industries Ltd.
CRH, a FTSE 100 and Fortune 500 company is a diversified building materials group which manufactures and distributes a diverse range of building material products. CRH employs approximately 76,000 people at 3,500 operating locations in 35 countries with 2012 sales revenue in excess of €18.5 billion.
