Adani Group is in search of more cement assets; plans to occupy the No. 1 spot in the sector

The Gujarat-based conglomerate, Adani is in talks to purchase cement units owned by the debt-laden Jaiprakash Power Ventures. The news has been suggested by a media report. The acquisition could be a potential milestone in the sector.

The deal includes a cement manufacturing unit and other smaller properties from Jaiprakash Power Ventures Ltd, and Jaiprakash Associates Ltd. the properties are valued at 606 million USD or Rs 5000 crore. The data has been sourced from the Bloomberg article that was dated October 10.
The JP associates cement grinding unit is located in Nigrie, which is located in Madhya Pradesh. The unit started its operations in 2014.

If the agreement is successful for Adani, it would prove to be a successful acquisition. It would further strengthen the Adani group’s presence in the cement sector.

Previously, the Adani group acquired Ambuja cement Ltd and ACC from Switzerland’s Holcim Ltd.
The acquisition has made Adani the second-largest cement maker overnight with an installed capacity of production comprising 67.5 MTPA.

The Jaypee Group listed their companies – Jaiprakash associates and Jaiprakash Power Ventures on the stock exchanges on October 10. They have informed the stock exchanges that they would no more invest in the cement manufacturing business.

In addition, the companies did not share the names of the potential buyers and the size or value of the stocks that the company planned to divest.

There were many queries from different platforms about the acquisition. But, both the Jaypee Group and Adani Group have denied commenting on the topic.

JP Associates assets valuation:
The annual report of the Jaiprakash associates, Jaypee Group, which includes the Jaiprakash Power Ventures shows that the company has installed a cement unit whose capacity of manufacturing includes 10.55 million tonnes per annum and 339 MW of captive power.

More than 50 percent of the Jaypee Group’s capacity of cement production is present in the central Indian market. Around 1.2 MTPA in the South Indian unit is under expansion, although the operation has been kept on hold for some time, and it includes the total capacity of cement production.

It is not the first time that the Jaiprakash Associates are selling off their cement plant. Previously in 2016. Jaypee Associates sold a 21.2 MTPA plant to Ultratech Cement for an EV of 115 USD.

As compared to the former deals, if one looks at the company’s debt, the value of 5000 crore INR seems justifiable. The analysis has been made by Ravi Sodah, who works for Elara securities.

The valuation made by the Adani Group in the purchase would take the EV/T value to 58 USD per tonne, which is cheaper than the Ambuja-ACC transaction.

It has not been informed if all the assets are a part of the acquisition.

JP Associates has 1.2 MTPA in Karnataka and 2.2 MTPA in Bhilai of the total 10.5 MTPA capacity. It is a joint business with the Steel Authority of India Limited (SAIL) and the rest of the capacity is present in Central India.

Adani Group has bought the stakes of Holcim group companies at an EV/T value of 162.7 USD per tonne.
The acquisition would reinforce the Adani Group’s exposure to the cement sector in Central India and would, in turn, lead to the growth of the company followed by savings.

The research analyst at Investec has stated that the acquisition of the JP associates would increase Adani’s exposure from 8 percent in the present to 22 to 23 percent. It would add to the company’s capacity in the high-yielding market and turn, would lead to great savings for the Adani group.

If the transaction succeeds, it could result in growth optionality and tax benefits.

What is Adani’s intention behind purchasing stakes of Jaypee associates?

Adani wants to make his name in the cement sector. Adani group plans to double its capacity of cement production of 140 million tonnes over the next five years, i.e by the end of 2027. Additionally, the company aims to become the largest cement manufacturing industry in India by 2030.

The company is spotted behind the UltraTech Cement. The recent acquisition of Holcim Ltd made Adani just behind UltraTech in size. Ultratech cement has a capacity of production accounting for about 120 MTPA and is in the midst of an expansion plan.
The plan is to be completed by the end of FY2023.
From the above data, it shows that Adani has a long way to overcome Ultratech cement, which would remain in the top cement manufacturing industries by FY2025.
If the Bloomberg reports are found to be accurate, then it can be concluded that Adani is moving rapidly.

edited and proofread by nikita sharma