UltraTech cements and Jaiprakash associates
Jaiprakash Associates Ltd: The target
The Jaypee Group, having interests in areas such as real estate, cement and hospitality, is the
country’s third largest cement maker after Aditya Birla Group .
Jaiprakash Associates Limited (“JAL”) is the flagship company of the Jaypee Group through which
the cement business of the Group is being carried out. In 2011, the cement operations of JAL in the
state of Gujarat and Andhra Pradesh along with certain other assets were hived off to Jaypee Cement
Corporation Limited (“JCCL”), a wholly owned subsidiary of JAL for a total cash consideration of
around Rs 4,031 crore.
Jaypee Group, which is sitting on a mountain of debt i.e. over Rs. 55,000 crores (including around
Rs. 23,000 crores of JAL) is targeting to reduce its debt by around Rs 15,000 crore this fiscal.
UltraTech – brief background:( The acquirer)
Aditya Birla Group, the country’s largest cement maker with 54 mtpa capacity (51 mtpa in India & 3
mtpa overseas) runs its cement business through Ultratech Cement Ltd. (“UltraTech”).
UltraTech Cement has completed the Rs 16,189 crore acquisition of Jaiprakash Associates' six
integrated cement plants and five grinding units, having a capacity of 21.2 million tonnes.
The transaction is largest deal to be concluded so far in the cement industry
Rationale for JP
1. Outstanding debts and interest-If JP manages to sell the cement assets as per plan and utilise the
proceeds fully for repayment, it would be able to prune its debt from Rs 24,126 crore as of March 31,
2015, to about Rs 7,000 crore. It can also renegotiate the terms and conditions of existing and proposed
loans and advances.
2. Market value and piling losses- A huge debt pile have ensured that JP trades as a penny stock. As
of 26th February 2016, it had a market value of just Rs 1,637 crore (Rs 6.73/share). All the cement
companies and divisions of JP group are in losses eroding the net worth of the company.
3. Refinance- If MMRD Act gets the nod, the deal may also include a clause that UT will refinance JP’s
borrowings at lower rates. This will bring down the future interest obligations of the company.
4. Core concentration– JP Group is determined to leverage its expertise in the fields of engineering &
construction, real estate and project execution, in a committed manner and such steps would further
‘cement’ its credentials of being a trustworthy organization in the long run.
Anatomy of the deal
Performance Indicators ofUlatraTech cements(standalone)
Sales Volume(MMT)
59.33
Net Revenue (` Crores)
29790
FY2014 FY2015 FY2016 FY2017 FY2018
EBITDA
6,478
5,629
FY2014 FY2015 FY2016 FY2017 FY2018
5,107
4,567
4,147
24%
22%
22%
21% 20%
FY2014 FY2015 FY2016 FY2017 FY2018
EBITDA(` Crs) Margin (%)
PAT (` Crores)
2,628
2,370
2,231
2,144
2,015
Particulars Units 2017-18# 2016-17# 2015-16#
ProdUctIon (Quantity)
- Clinker Mn.T 45.41 37.10 37.07
- Cement Mn.T 57.23 47.91 47.56
sales (Quantity) Mn.T 59.33 48.87 47.96
ProfIt & loss account
Revenue Net of Excise Duty (Including Operating Income) ` Crs 29,790 23,891 23,709
Operating Expenses ` Crs 23,907 18,922 19,082
Operating Profit ` Crs 5,883 4,969 4,627
Other Income ` Crs 595 660 481
EBItda ` Crs 6,478 5,629 5,107
Depreciation / Amortisation ` Crs 1,764 1,268 1,297
EBIT ` Crs 4,714 4,361 3,810
Interest ` Crs 1,186 571 512
Profit Before tax ` Crs 3,528 3,790 3,299
Exceptional items Gain / (Loss) ` Crs (226) (14) -
Profit after Exceptional items ` Crs 3,302 3,776 3,299
Tax Expenses ` Crs 1,071 1,148 928
Profit After Tax ` Crs 2,231 2,628 2,370
Cash Profit ` Crs 4,580 4,251 3,972
Dividend (incl. Dividend distribution tax) ` Crs 348 330 314
Balance sHeet
Net Fixed Assets including CWIP & Capital Advances ` Crs 40,782 24,387 24,499
Investments (Non - Current & Current) ` Crs 6,163 9,409 7,793
Net Working Capital ` Crs (438) (956) (574)
Derivative Assets (Net) ` Crs 10 115 595
capital employed ` Crs 46,517 32,955 32,313
net Worth represented by:-
Equity Share Capital ` Crs 275 275 274
Reserves & Surplus ` Crs 25,648 23,667 21,357
net Worth ` Crs 25,923 23,941 21,632
Loan Funds * ` Crs 17,420 6,240 8,250
Deferred Tax Liabilities ` Crs 3,174 2,774 2,432
Capital Employed ` Crs 46,517 32,955 32,313
ratIos & statIstIcs
EBITDA Margin % 22% 24% 22%
Net Margin % 8% 11% 10%
Interest Cover (EBIT / Gross Interest) Times 3.99 7.61 7.23
ROCE (EBIT / Average Capital Employed) % 10% 13% 12%
Current Ratio Times 0.94 0.85 0.90
Debt Equity Ratio (Net) Times 0.46 (0.10) 0.05
Net Debt / EBITDA Times 1.85 (0.43) 0.23
Dividend per share ` / Share 10.50 10.00 9.50
Dividend Payout on Net Profit % 16% 13% 13%
EPS ` / Share 81.27 95.74 86.37
Cash EPS ` / Share 166.81 154.88 144.74
Book Value per share ` / Share 944 872 788
No. of Equity Shares Nos. Crs 27.46 27.45 27.44
Year after Year of Before
Performance of Aquisition Acquisition Acquisition Jayprakash
associates Financial year ended 31.03.2018 31.03.2017 31.03.2016 before and after
Gross Total Revenue 6288.1 6,756.68 9,306.53
acquisition
Profit before Interest, 1210.73 80.37 986.46
Depreciation & Tax
Less: Finance Costs 967.54 3,567.28 3,757.24
Less : Depreciation 506.75 878.20 913.71
Profit before Exceptional (-)263.56 (-) 4,365.11 (-) 3,684.49
items & Tax
Exceptional Items (-)615.27 (-) 480.34 (-) 304.98
Profit before Tax (-)351.71 (-) 4,845.45 (-) 3,989.47
Provision for Tax (including - (-) 483.88 (-) 1,168.86
Deferred Tax)
Profit after Tax 351.71 (-) 4,361.57 (-) 2,820.61
Other Comprehensive (-)10 (-) 3.62 (-) 1.82
Income
Total Comprehensive (-)341.71 (-) 4,365.19 (-) 2,822.43
Income
Basic Earning Per Share 1.45 (-) 17.93 (-) 11.60
[Face value ` 2 per share] in
Rupees
Diluted Earning Per Share 1.45 (-) 17.10 (-) 10.99
[Face value ` 2 per Share] in
Rupees
Post-acquisition, UltraTech's grey cement manufacturing capacity has gone up to 93 million
tonnes per annum and has become fourth largest cement player globally, excluding the Chinese
players. Ultratech posted a decline of 31 per cent in consolidated net profit after acquisition.
For Jaypee associations, this may be only the first of the moves to trim the Rs55,000 crore debt it
carried on its books as of March 2017.
Jaypee Cement had Rs.350 crores of carry forward losses. The deal with Ultratech cements will
reduce Jaypee group’s debt by Rs.3650 crore.
Before this acquisition Ultratech was country’s 2nd largest cement company. This acquisition will
not dilute the ranking for the company but it will provide an advantage to UltraTech in competitive
positioning. The deal is equally significant for JP cement, it will help company cut its debt by 6.63%.
Benefit for UltraTech
Market share:
1. Access to markets in central India, where it has no presence.
2. Improve market share in the key northern, central and southern zones where its
presence is either weak or non-existent.
3. Market share will expand from 17% to 22% after this transaction.
Fund Raising: Assuming the Company has financed the deal through internal accruals of
Rs 2,000 crore and funding the balance by 60% debt and 40% equity, its debt to equity ratio
will rise to 0.87 from 0.40 and equity would be diluted by about 7% (assuming no preferential
allotment). Alternatively, if it is assumed that deal is financed entirely by debt then debt equity
ratio would rise to 1.29.
Conclusion
The deal will help UT to accelerate its position further in Indian and global markets and
will ease off pressure on JP from the stakeholders and let it concentrate on other core
businesses.
JP may also transfer some of their debt to Ultra-Tech which means that lenders now have
exposure to a business group that’s regarded as being financially sounder than many
others, thereby reducing the risk of defaults and also improving its capital adequacy ratio.
The transaction also highlights the growing trend of lenders putting pressure on debt-
laden business houses to sell assets and deleverage the balance sheet. Due to rising
non-performing assets in the banking sector, it is a purely buyers’ market where the seller
does not have much choice other than agreeing on the term sheet offered by the buyers.
