Aditya Birla Group firm UltraTech Cement Ltd Wednesday said it will acquire Gujarat Cement unit of Jaypee Cement Corp Ltd for Rs 3,800 crore.
Mumbai/New Delhi: In one of the largest domestic M&A deals of recent times, Aditya Birla group company UltraTech Cement Wednesday announced the acquisition of Jaypee Cement Corporation's (JCCL) Gujarat unit for Rs 3,800 crore.
The deal, to be completed in seven to nine months, will further cement UltraTech's numero uno position in the market and give it an entry into Gujarat. For the Jaypee Group, it will help pare a portion of its Rs 55,000 crore debt.
"With this acquisition of 4.8 million tonne capacity, our installed capacity will increase to 59 million tonnes per annum, which will go up to 70 million tonnes by 2015, thus further strengthening our market leadership," UltraTech Cement Chairman Kumar Mangalam Birla said while announcing the deal.
Birla said the acquisition will be funded through equity of Rs 150 crore, debt worth Rs 2,000 crore and the remainder of Rs 1,650 crore through internal accruals. Jaypee Cement had Rs 350 crore of carry forward losses.
"Despite the prevailing muted growth scenario, we believe long-term fundamentals and growth prospects remain intact," Birla said. "We will add more capacities in coming years."
Infra major Jaypee Group said the sale of the Gujarat cement plant will reduce its debt by Rs 3,600 crore in the current financial year.
"JP Associates' debt will come down by around Rs 3,600 crore from the existing Rs 23,000 crore," Jaypee Group Chairman Manoj Gaur told reporters in the capital, adding the group's total debt currently stands at Rs 55,000 crore.
"We are targeting to reduce debt by Rs 15,000 crore this fiscal," Gaur said.
UltraTech shares rose 1.6 percent to end at Rs 1,732.60 on the BSE and Jaiprakash Associates jumped 6.24 percent to close at Rs 43.40.
After the transaction, the Jaypee Group's cement capacity will come down to 33 million tonnes and it will continue to be the third-largest cement manufacturer in the country.
The acquisition comprises of an integrated cement unit at Sewagram and a grinding unit at Wanakbori in Gujarat, Birla said. The combined capacity of both the divisions of the Gujarat unit is 4.8 mtpa with a 57.5 MW coal-based thermal power plant, limestone reserves for over 90 years at current capacity and a captive jetty at Sewagram.
The proposed transaction is subject to statutory approvals. The transaction is expected to close in seven to nine months, Birla said.
UltraTech will take over all assets and liabilities of the unit at closing and the consideration will be the enterprise value less liabilities taken over, Birla said. The consideration will be discharged by allotting UltraTech shares worth Rs 150 crore to Jaypee Cement shareholders.
"Besides giving us a stronger production base in Gujarat to serve the local market, the deal will also bolster our coastal footprint, enabling us to cater to other regions as well as exports," UltraTech whole-time director OP Puranmalka said.
With the huge limestone reserves, the company hopes to double the capacity at the Gujarat unit in the near future, Puranmalka said, adding its capacity utilisation will be increased to 80 percent 62 percent currently.
UltraTech has added 21 mtpa capacity since 2005 and will add 10 million tonnes by 2015. It had built cement capacities in all zones, except the Gujarat region.
"The transaction will also help us realise logistics gains and be value accretive in the medium term," said Kailash Birla, CFO of UltraTech.