The Rs.3,800-crore deal is expected to close in 8-9 months
UltraTech Cement, a part of the Aditya Birla group, said on Wednesday that it would acquire the 4.8 million-tonne Gujarat unit of Jaypee Cement Corporation Ltd. (JCCL) by way of a de-merger. The enterprise value for the transaction is Rs.3,800 crore.
JCCL is a wholly-owned subsidiary of Jaiprakash Associates, and the transaction involves an integrated cement unit at Sewagram and grinding unit at Wanakbori. Other than the 4.8 million-tonne combined capacity of both Gujarat units, the deal also includes a 57.5 MW coal-based thermal power plant, limestone reserves for over 90 years, and a captive jetty at Sewagram.
Further, as part of the transaction, UltraTech will take over all the assets and liabilities of the unit at closing and the net amount of enterprise value less liabilities taken over will be the consideration.
Besides taking over debt of Rs.3,650 crore, UltraTech will issue equity shares to the shareholders of JCCL, subject to a maximum value of Rs.150 crore. Of the Rs.3,650 crore, while Rs.1,650 crore will be financed through internal accruals, UltraTech plans to negotiate for lower rates to refinance the Rs.2,000 crore debt. The transaction is expected to close in 8-9 months and the Gujarat units of JCCL will be merged with UltraTech.
Addressing a press conference, Kumar Mangalam Birla, Chairman, UltraTech Cement, said, “We are already the largest cement player in the country with 51 million tonnes per annum (tpa) in India and 3 million tonnes capacity overseas. With this acquisition of 4.8 million tpa, the company’s present capacity increases to 59 million tpa. With projects under way, it will stand raised to 70 million tpa by 2015. The transaction will be value-accretive in the third year after the transaction and we expect immediate synergy gains of Rs.40 crore”.
Saying that the Gujarat market grew at 11.7 per cent in the last seven years, Mr. Birla said, “so it was of paramount importance to increase our presence in Gujarat. Our current plants in Saurashtra operate at 95 per cent capacity and we need optimal volumes to feed into Mumbai, Kochi and Sri Lanka where we have grinding units”.
On the reasons for not acquiring JCCL’s 5 million tpa Andhra Pradesh unit, Mr. Birla said that UltraTech had only last year commissioned a 4.8 million plant in Tadapatri, “and given the overcapacity in the south, we chose not to acquire it”.
O. P. Puranmalka, wholetime director, UltraTech, said his company would take steps to increase capacity utilisation at the JCCL plants from 62 per cent to 85 per cent in the coming years. “We will also increase operational efficiency and increase the proportion of blended cement from 15 per cent now. We will also increase trade sales from 35 per cent now and the Jaypee brand will be converted into the UltraTech brand”.