Birla, Lafarge Eye JP Cement Plants

10-MT GUJARAT, ANDHRA PRADESH UNITS ON THE BLOCK; COULD FETCH . 9,000 CRORE

SABARINATH M, RAVI TEJA SHARMA & MAULIK VYAS 

The AV Birla Group and French cement giant Lafarge are in talks to buy out Jaiprakash Associates' cement plants in Gujarat and Andhra Pradesh, after the New Delhibased company decided to spin off the assets into a separate company to attract buyers willing to pay a premium. 
The two leading cement players have been in talks with the Jaypee Group for some time and there are indications the deal could happen this time around with either of the two companies or with Holcim, another large contender also believed to be in the race. 
People close to the development said officials from Lafarge and the AV Birla Group company UltraTech have completed initial rounds of talks. Final bids are expected shortly, said two senior executives with knowledge of the development. 
"Our Gujarat and Andhra Pradesh cement units have been hived off into a separate company and we are exploring the option of getting a strategic investor into this company to monetise a part of our investments so the parent company can reduce its debt," said a senior official at Jaypee Cement. AV Birla Group cement business head OP Puranmalka did not want to comment on what he said was market speculation. A Lafarge India spokesperson also declined comment. Jaypee was forced to revise its plan last year after investors failed to show interest in buying out the complete cement business. Among other things, investors, including the AV Birla Group, wanted a majority stake while the Jaypee Group was only willing to offer a minority share. 
The revised plan called for hiving off the plants in southern and western India, totalling a capacity of 9.8 million tonnes, into a separate company that could then be sold to strategic investors. Jaypee Cement Corp, as the new company is called, runs two plants in Sewagram, Kutch, and Wanakbori, Gujarat, each with a capacity of 2.4 million tonnes, and a 5-million-tonne unit in Andhra Pradesh's Krishna district. Setting Up Greenfield Cement Plant Costly 
The assets could fetch Jaypee at least $160 per tonne, considering the demand in two of the country's fastest-growing regions. The cost of setting up a greenfield cement plant has increased from $120 per tonne to $160 per tonne in the past two years. If this is taken as the benchmark, Jaypee's 10-million-tonne capacity could be valued at about Rs 9,000 crore. 
Cement valuations in the country have remained high thanks to limited limestone availability in some parts and high demand from the infrastructure, building and construction sectors. The current slowdown has hit demand in some places but valuations have not come down, especially in the south, where limestone availability is limited. Jaypee bought Andhra Cement, a loss-making unit, for about $130 per tonne last year, while French giant Vicat SA purchased YSR Congress MP Jaganmohan Reddy's Bharathi Cement for $200 per tonne. 
Lafarge and UltraTech are discussing the possibility of buying out the company lock, stock and barrel, as it would strengthen their presence in a growing market like Gujarat. The acquisition, if it happens, will help UltraTech ramp up capacity to 12 million tonnes per annum, and consolidate its leadership position in Gujarat, allowing it to compete with strong rivals such as Gujarat Ambuja and L&T. The company operates 7 million tonnes of capacity in the state. UltraTech will add another 10 million TPA in the first quarter of the next financial year, taking its total capacity to 64 million TPA. AV Birla Group Chairman Kumar Mangalam Birla had said the group would scale up cement capacity through acquisitions and the greenfield route.