India’s largest cement maker and Aditya Birla Group company UltraTech Cement said on Sunday that it will acquire debt-ridden Jaiprakash Associates’ (Jaypee) 22.4 million-tonne cement capacity for an enterprise value of Rs 16,500 crore.
One of the biggest deals in the sector, this acquisition will put the Aditya Birla Group among the world’s top five cement companies with an installed capacity of 90.7 million tonnes, and also give it access to cement markets in southern and central India, where it was hitherto not present. UltraTech currently has a capacity of 68.3 million tonnes.
Under the deal approved by regulators, UltraTech will pay Rs 16,500 crore for the debt of Jaiprakash Associates, which will flow to the banks that had lent to Jaypee. An enterprise value acquisition typically involves the cost of the asset as well as the debt on the books of the company being acquired. Jaypee currently has a debt of around Rs 31,000 crore.
The transaction comes a week after UltraTech withdrew from the Bombay High Court, its bid to buy a unit of Jaiprakash Associates, since current laws do not allow the transfer of mines in a piecemeal acquisition. As Sunday’s announcement involves acquisition of the entire unit, ownership of limestone mines — vital in cement making — also stand transferred to UltraTech.
After this deal, Jaypee will be left with 6 million tonnes of cement capacity.
“It is an all-debt deal and gives us entry into markets where we did not have much presence,” UltraTech CFO Atul Daga told HT. “We see this acquisition as preparation for the beginning of the next round of demand growth in the industry.”
Till 2014, the Indian cement industry was second only to China in annual growth, but it is currently grappling with slow demand growth of 2-3% per annum due to fewer allocations to housing and infrastructure projects.
“It has been considered appropriate to divest a significant portion of the total cement capacity in favour of a company, which would be the first to achieve the coveted 100 million-tonne mark in the cement segment,” said Manoj Gaur, executive chairman of Jaiprakash Associates.
In 2014, UltraTech stood 11th among the world’s top 75 cement companies by capacity, according to the Global Cement Magazine. The JP deal takes it to the fifth spot behind Anhui (China), Lafarge (France), Holcim (Switzerland) and CNBM (China).