Jaiprakash Group to sell all cement plants to Dalmia

Jaiprakash Group exits cement biz
Jaiprakash Group exits cement biz

by 5paisa Research Team Last Updated: Dec 13, 2022 - 06:36 pm 7.4k Views
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It looks like consolidation in the cement sector is still happening at a frenetic pace. With Ultratech and Adani on a massive expansion spree, other players like Shree Cements and Dalmia Cements are also not too far behind. In the latest inorganic move in the cement industry, Jaiprakash Associates will be selling its cement, clinker and power plants as a comprehensive package to Dalmia Cements, which is among the top 4 cement manufacturers in India today. The deal is being executed at an enterprise valuation of Rs5,666 crore. This is likely to give the much needed cash to the beleaguered Jaiprakash group and will help the Dalmia group to inorganically expand its cement capacity.

Post the completion of the sale of the cement and clinker plants by Jaiprakash to Dalmia Cements, the latter will have additional cement capacity of 9.40 million tonnes per annum (MTPA) plus additional clinker capacity of 6.70 MTPA. In addition, by acquiring the power plants of Jaiprakash Group; Dalmia Cement also gets additional thermal power capacity of 280 MW. The power plants are located in the states of Madhya Pradesh, Uttar Pradesh, and Chhattisgarh. Currently, the said transaction is under due diligence and will be subject to the receipt of necessary statutory approvals and clearances from the relevant regulatory authorities. For Jaiprakash Group, it is an effort to reduce debt by monetizing assets.

It may be recollected that the Jaiprakash group, which had literally folded up under a pile of debt, had started the asset monetization exercise nearly 10 years back. IN fact, back in the years 2014 to 2017, Jaiprakash Associates had divested cement capacity to the tune of more than 20 million tonnes per annum (MTPA) to UltraTech Cement Ltd, part of the Aditya Birla group and the largest cement company in the country based on installed capacity. Subsequently, the Jaiprakash group had sold its controlling stake in over 2 MTPA cement capacity to the Dalmia Group in 2015. This is the final round of sale of its cement capacity towards defraying its debt to creditors to the extent possible.

For Dalmia, this is a natural extension of its existing business model. Currently, Dalmia is planning to enter the high-growth markets of UP and MP (Central region), to reduce its current dependence on the current markets of South and East India, which it predominantly caters to. Dalmia Cements already has total cement and clinker capacity of 37 MTPA and this deal will take the capacity to 48 MTPA. This also positions the company to touch its target of 60 MTPA by the year FY24. Hopefully, that should take the company past Shree Cements by FY25. Shree Cements has existing capacity of 56 MTPA of cement overall.

Currently, there is tremendous consolidation going on in the cement industry. Adani has already bought out ACC and Ambuja Cements and is scouting for potential targets in south India. Ultratech has aggressive organic and inorganic plans for cement capacity. By the end of the decade, Ultratech plans to grow its cement capacity to 190 MTPA while Adani group plans to grow its cement capacity to 140 MTPA. That would create an unprecedented consolidation in the cement industry leaving just about 5-6 large players in the cement industry. The only option for existing players would be to stay proactive in organic and inorganic growth to cement their position in the industry in terms of installed capacity.

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