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This article is written by Ayushi Mahajan, currently pursuing BBA-LL.B  from Centre For Legal Studies, Gitarattan International Business School (Guru Gobind Singh Indraprastha University). This article talks about the merger of cement company Ultratech with Jaypee group.


Mergers and acquisitions (M & A) are defined as the consolidation of companies. Separating the two terms, a merger is said to be the combination of the two companies to form one, while an acquisition is a company that is taken over by another. M&A is one of the major aspects of the world of corporate finance. The rationale behind M&A is that generally, two different companies create more value than when they are on individual stands. For the purpose of wealth maximization, companies continue to evaluate various opportunities through a route of merger or acquisition.

The acquisition of the Jaypee Cement, Gujarat unit by Ultratech is one of the largest domestic M&A recent deals. Aditya Birla Group has acquired the Jaypee Cement Corporation (JCCL) Gujarat unit for Rs 3800 crores.

Jaypee Group: brief background

Jaypee Group with interests in sectors such as real estate, cement and hospitality, Aditya Birla Group which is with an installed capacity of 33.5 mtpa is known as the third-largest cement manufacturer in the country after the Holcim Group. The group is working on the increment of its cement capacity to 36 mtpa which is by the end of the current financial year and is evaluating various locations to take it to 50 mtpa capacity over the next five years.

Jaiprakash Associates Limited (“JAL”) is known as the flagship company of Jaypee Group, through which the group’s cement business is being carried out. In 2011, JAL’s cement operations in the state of Gujarat and Andhra Pradesh, as well as some other assets, were closed to the Jaypee Cement Corporation Limited (“JCCL”), a wholly-owned subsidiary of the JAL, worth approximately Rs 4,031. Total cash is for consideration. 

As a result, cement units in Gujarat and Andhra Pradesh have a capacity of about 4.8 mtpa and 5 mtpa and are currently under the aegis of JCCL.

Jaypee Group, which is sitting on a mountain of debt i.e. Rs. 55,000 crores (including about 23,000 crores of JAL) with a target of reducing its debt by about 15,000 crores in this financial year.

UltraTech: brief background

Aditya Birla Group, which is one of the country’s largest cement manufacturers with 54 mtpa capacity, runs its cement business through UltraTech Cement Limited (“UltraTech”) and operates from 10 mtpa till 2015. Plans to increase capacity with its ongoing expansion in Chhattisgarh, Karnataka and Rajasthan.

India’s largest cement-maker Ultratech Cements Ltd (UT) had to close a Rs 5,325-crore deal to buy two cement plants (5 MTPA) of Jaiprakash Associates Ltd (JP) in Madhya Pradesh as the Bombay High Court cited the arrangement Giving rejected the plan. The new MMDR act as the main reason.

The transaction

Ultratech proposed to acquire JCCL’s cement operations in Gujarat at the enterprise value of Rs 3,800 crore.

The acquisition is proposed to be done through a demerger through a scheme as per Section 391-394 of the Companies Act, 1956. All assets and liabilities of JCCL (including debt and other liability of JCCL, Rs. 3650 crore related to cement operations in Gujarat will be transferred to UltraTech. The consideration for the demerger would be equal to the enterprise value less liabilities and such consideration would be discharged by UltraTech through the issuance of the equity shares to the shareholders of the JCCL i.e. JAL as required by the tax law. In this regard, we have to note that:

  • The current estimate of the idea is around Rs. 47 crore
  • Closing consideration for movements in working capital, liabilities, assets and share price of UltraTech
  • Rs. 50 crores were considered – Maximum amortization ~ 0.32% as per agreed formula at current prices

JCCL’s Gujarat operation which will be transferred to Ultratech, which mainly consists of integrated cement unit at Sevagram, Kutch, Gujarat, with a clinker capacity of 3.6 mtpa and cement grinding of 2.4 mtpa and cement grinding with Wanakbori (near, Ahmedabad) The capacity of the cement unit is 2.4 mtpa.

The combined capacity of the both divisions of the Gujarat unit is 4.8 mtpa with a land area of ​​5479 hectares, a 57.5 MW of the coal-based thermal power plant and limestone reserves of about 500 MnT – enough for more than 90 years at present capacity, At Captive Jetty Sevagram – 2500 DWT bars .

The proposed transaction which has occurred is said to be the subject to the approval of creditors and shareholders, approval of the Competition Commission of India and approval of the arrangement by the High Courts all other statutory approvals and therefore the transaction is expected to be closed in 8-9 months according to both parties.


The acquisition is proposed to be funded through equity of Rs 150 crore, loan of Rs 2,000 crore and internal accretion of Rs 1,650 crore.

UltraTech is expected to negotiate with JCCL lenders to restructure the existing loans on subsequent books. If negotiations fail, UltraTech can refinance the loan.

Impact of the deal on the Jaypee Group

  • Post the transaction, Jaypee Group’s cement capacity will come down to 33 mtpa and will remain the third-largest cement manufacturer of the country after the Aditya Birla Group and the Holcim Group.
  • The deal will help the Jaypee Group to raise its debt of Rs 55,000 crore to about Rs 3650 crore.

Rationale for Jaypee

Outstanding debts and interest

If Jaypee manages to sell the assets fully and use the proceeds for repayment as per the plan, it will be able to raise its debt from Rs 24,126 crore to around Rs 7,000 crore by 31 March 2015. It can also reconcile the terms and conditions of existing and proposed loans and advances.

Market value and piling losses

A large debt pile has ensured that JP trades as a stock. As of 26 February 2016, its market value was just Rs 1,637 crore (Rs 6.73 / share). All cement companies and divisions of the Jaypee Group are at a loss to destroy the net worth of the company.


If the MMDR Act is approved, the deal may also include a clause that UT will refinance JP’s lending at lower rates. This will reduce the company’s future interest obligations.

Core concentration

The Jaypee Group is committed to leveraging its expertise in the fields of engineering, real estate and project execution and construction, and such steps will further cement its ‘cement’ to be a reliable organization in the long run.

The effect on the Jaypee group

  • JP will lose its cement business which is generating substantial cash flow.
  • The pressure from bankers and the comparison of its earlier transactions with UT also indicated that the deal was slightly less favorable to JP.

Shareholder prices are currently low and may decrease further immediately after sales but this may increase gradually over the long term due to concentration on core businesses and concentration.

Impact of the deal on UltraTech

  • With this acquisition of 4.8 mtpa capacity, UltraTech’s installed capacity will increase to 59 mtpa, further strengthening UltraTech’s market leadership in the Indian cement sector.
  • The acquisition will fulfill Ultratech’s need to increase capacity in Gujarat.
  • The cement market in Gujarat grew at a rate of 11.7 percent in the last seven years; Gujarat is also strategically well-positioned from an export point of view.
  • Ultratech’s existing plant in Saurashtra, Gujarat is currently running at 95% capacity and requires optimum quantities for grinding in Mumbai, Kochi and Sri Lanka, where they have grinding units. Ultratech requires additional volumes to serve the local, coastal and export markets.
  • Ultratech lost quantity at Gujarat post-settlement of Shri Digvijay Cement Company Limited.
  • Ultratech had built capacity in all sectors except the Gujarat region.
  • Access to a jetty will also enable Ultratech to ship cement to new markets.
  • UltraTech proposes to increase capacity utilization at JCCL plants from 62% to 85% in the coming years. With an increase in operating capacity, an increase in the proportion of composite cement from the current 15%, an increase in business sales from the current 35%, and the conversion of the Jaypee brand to the Ultratech brand, Ultratech anticipated, among other measures to increase operations. Performance of acquired entity.
  • Ultratech is expecting a deal of around Rs 30-40 a year from the deal due to manufacturing, marketing and supply chain synergies. Ultratech has an existing plant in Saurashtra, Gujarat and now with JCCL’s acquired assets in Kutch, synergistic gains will increase on the increase in coastal and clinker movement.
  • JCCL’s peace units will help Ultratech cut its logistics expenses due to its proximity to key markets.
  • With approximately 5479 hectares of land and 500MT of mining reserves, UltraTech has the potential to double the capacity in the acquired cement unit in the near future. In view of this, UltraTech believes that the transaction will be worth over the next three years.
  • The acquisition includes high-quality cement plants with the latest technology with immediate cash generation capacity.
  • Ultratech will also benefit from a tax perspective due to further trade losses and depreciated depreciation of the acquired unit of Rs 350 crore.

What’s in for Ultratech


The deal will increase its installed capacity by 25% to 92.3 MTPA. UT will become one of the world’s five largest cement manufacturers. Capacity per share will increase from 0.25 t / share to 0.32 t / share. EBITDA is about Rs. Will be reduced by 68 crores / MTPA to Rs. 63 crores / mtpa.

Market share

  • Access to markets in Central India, where it has no presence.
  • Improve market share in northern, central and southern regions where its presence is either weak or non-existent.
  • The market share will increase from 17% to 22% after this deal.


The company considered the deal through internal charges of Rs 2,000 crore and financing of the balance amount by 60% debt and 40% equity, saying its debt to equity ratio would be 0.40 to 0.87 and equity diluted by about 7%. Will (assuming no preference) allocation). Alternatively, the debt-equity ratio will increase to 1.29 if it is assumed that the deal is fully funded by debt.


The capacity of acquiring for $132/tonne would require $ 21.6 / tonne in EBITDA (Earning before Interest, taxes, Depreciation and amortization) to generate a Return on Equity (RoE) of 14%. In contrast, the assets being acquired are reported to be EBITDA / ton below $10/t. UT reported EBITDA / ton above $15/t, which is still lower than what UTC is paying in this latest deal (EVA to be neutral).


It is understood that the acquisition is valued on the basis of replacement costs with additional strategic assets. According to industry estimates, the transaction implies a valuation of $ 124 per ton of cement, which is less than the current benchmark of $ 140–145 per ton and is positive for UltraTech. This valuation is equivalent to $ 133 per ton which is estimated to pay for a stake in ACC units of Ambuja Cements.


With this acquisition of 4.8 mtpa capacity, UltraTech’s installed capacity will increase to 59 mtpa, further strengthening UltraTech’s market leadership in the Indian cement sector. Jaypee may also transfer some of its debt to Ultra-Tech, that is lenders now have exposure to a business group considered financially stronger than many others, reducing the risk of defaults and its capital adequacy ratio also improves. The deal will help UltraTech to further sharpen its position in the Indian and global markets and ease pressure on Jaypee from stakeholders and allow it to focus on other core businesses. However, the Jaypee Group still faces a major challenge to sell its 5 mtpa cement unit in Andhra Pradesh, which is currently running below the capacity, given the overcapacity in the south areas of India, the Indian cement industry is in a consolidation phase and is going to see a lot of deals not happening in the distant future.



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