M&A Critique

Orient cement’s acquisition Jaypee Group’s cement assets

The estimated size of Indian Cement Industry is 410-420 million tonnes. Over the last 3 years, the Indian cement industry has seen 47 million tonnes of capacity change hands for an EV of more than Rs.36,000 Crore. The industry is highly fragmented but the top 4 cement producers—LafargeHolcim-controlled ACC Ltd, Ambuja Cement Ltd, Aditya Birla Group’s UltraTech Ltd, and Dalmia Cement—hold about 41.66% market share. Consolation likely to happen but only amongst the top 3-4 players.

Transaction Overview

Transaction 1: Orient Cement Limited (‘Orient Cement’) today agreed to acquire Jaiprakash Associates Limited’s (“JAL”) 74% stake in Bhilai Jaypee Cement Limited (“BJCL”) for an Enterprise Value of INR 1,450 crores. BJCL is a JV between JAL & SAIL. BJCL has 2.2 MT of cement capacity and 1,.1 MT clinker capacity. Net worth of the company as on March,16 is Rs 167.89 crores. BJCL was incorporated in 2007 and Fy16 turnover was 400 crores, though FY 14 turnover was Rs 700 crores

The deals fit into strategic objectives of both the companies and likely to create value not for its shareholders but also other stakeholders like lenders, suppliers, customers and employees

Transaction 2: Orient Cement Limited (‘Orient Cement’) today agreed to acquire Nigrie Cement Grinding unit (“Nigrie unit”) from Jaiprakash Power Ventures Limited (“JPVL”) for an Enterprise Value of INR 500 crores.  Production capacity is 2MT and the unit started operations only in Fy16 .` Against Project cost of Rs 335 Crores, Cash and Cash return (x) on project – 1.5X

Deal Rationale :

  • JAL is saddled with a huge debt of Rs 58,250 crores. Both the transactions are an attempt by Jaypee Group to divest its assets (Cement and Power) and reduce its debt burden as banks invoke SDR in JAL. The group has sold several cement and power assets since 2013 to reduce its debt burden.
  • Both transactions  will provide Orient Cement with high-quality assets taking its total capacity from 8.0mtpa to 12.2mtpa & access to new markets increase of  all most 50%


2012 2013 2014 2015 2016
Debt 45,370 55,378 61,101 61,285 58,249
Equity 11,478 12,553 10,270 14,955 13,084
EBITDA 15,120 19,128 19,976 19,811 17,406
Interest 3,134 4,569 6,094 7,229 7,515
D/E (X) 4.0 4.4 5.9 4.1 4.5
Debt/EBITDA (X) 3.0 2.90 3.06 3.09 3.35
EBITDA/Interest (X) 4.8 4.2 3.3 2.7 2.3

Above results show the real reason for exit by Jaiprakash group


Debt-laden Jaypee group has been on an asset sale spree over the last 3 Years due to extreme financial pressures faced by Jaypee Group. The group has so far focussed on selling its core assets in the power and cement sectors in order to reduce its debt. In March 2016, JAL agreed to sell its entire cement division of 21.2 million tonnes to Ultratech Cement, which will fetch the company an enterprise value of Rs.16,189 crore.  However, despite adopting a divestment strategy, banks have invoked SDR in JAL  and the promoters of Jaypee Group may lose control of their business to Lenders in the process, if they covert loan into equity. This provides an opportunity for credible strategic investors with the strong balance sheet to acquire quality assets of JAL in Power Generation and Cement. Also, private equity firms are scouting for opportunities across distressed firms as well and could be potential buyers for JAL assets.

As far as Orient cement is concerned it has a dual advantage in acquisitions- it can enter new markets quickly and immediately and including 3mtpa expansion last year along with these acquisitions, its capacity has become more than double without any equity dilution. As a result, per share gross sale on a consolidated basis can go up to 3 times of FY 16 considering last year capacity utilization of the only 4mtpa. As debt equity ratio will be substantially higher, equity dilution immediately after the acquisition is most likely

The deals fit into strategic objectives of both the companies and likely to create value, not for its shareholders but also other stakeholders like lenders, suppliers, customers, and employees.


Kedar Kingi