The Manoj Gaur-promoted Jaypee Group has once again fallen back on its cement assets to come out of its debt trap. Group company Jaiprakash Associates is in talks with Aditya Birla Group flagship UltraTech Cement to sell its 2.2 million tonne capacity cement at Bhilai in Chhattisgarh. The plant is 74:26 joint venture between Jaypee Group and public sector steel producer SAIL.
“Jaiprakash Associates has a big pile of debt on its balance sheet and cement is the only business which allows it the easy exit,” said Piyush Jain, equity research analyst, Morningstar Investment Advisor.
The combined debt of the group's three listed companies - Jaiprakash Associates, Jaiprakash Power Ventures, and Jaypee Infratech - crossed Rs 57,000 crore in 2013-14. The group had earlier found it difficult to sell its hydro power plants for which the discussions fell twice, first with Abu Dhabi national energy company Taqa and then with Reliance Power. Finally it sold its 1,391 Mw capacity plant to JSW Energy for Rs 9,700 crore late last year.
Comparatively, the company has found it easier to sell its cement assets. In 2013 UltraTech acquired JP’s 4.8 mtpa plant in Gujarat for Rs 3,800 crore followed with two more plants with aggregate capacity of 4.9 mtpa in Madhya Pradesh for Rs 5,400 crore last year. Besides it sold 1.5 mt griding unit at Panipat in Haryana to H M Bangur-promoted Shree Cement.
It is once again back to selling another cement plant now to deleverage group’s balance sheet as lenders put pressure. “Both the companies have been in talks for some time now and the deal is expected to materialise soon,” said an investment banker familiar with the talks.
While a JP Group spokesperson declined to comment calling it speculative, UltraTech did not respond to queries sent. “The deal could be valued at about Rs 2,000 crore,” said another person familiar with the talks. The Bhilai plant has about Rs 550 crore of debt on its books.
“If this deal happens, UltraTech will be a clear beneficiary. It will help the company consolidate its market share in the eastern region,” said Jain. The Birla firm will increasingly get economies of scale as it gains size. This can take UltraTech's overall capacity to 67 million tonnes per annum - much ahead of its closest peer group Holcim, which controls ACC and Ambuja Cements, with a capacity of 57.5 mtpa.
Jaypee currently has an overall capacity of 22 million tonne, which is the third largest in the country. However, after the deal is inked, it will slip to below 20 million tonnes and will be in the category of mid-size cement firms with the likes of Shree Cement, Madras Cement and India Cements.
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