DOON BUSINESS

SCHOOL
DEHRADUN, UTTARAKHAND

ASSIGNMENT OF FM

REPORT

ACQUISITION OF JAYPEE BY
ULTRATECH CEMENT

SUBMITTED TO: SUBMITTED BY:

DR. SHALINI SINGH MAYANK SINGH RAWAT
SHASHWAT VIKRAM SINGH
MBA-BASE-2ND SEM
 UltraTech Cement-Jaypee Group
Deal size: Rs 16,189 crore
UltraTech Cement completed the USD 2.54 billion acquisition of Jaiprakash Associates' six
integrated cement plants and five grinding units, having a capacity of 21.2 million tonnes last
year. Post-acquisition, UltraTech has become the fourth largest cement player globally,
excluding Chinese players. The deal has also helped Jaypee Group, which can reduce its debt
that runs into thousands of crores of rupees.
Strategic move by Ultratech cement Acquisition of Jaypee Cement Gujarat unit by Ultratech
is one of the largest domestic M&A deals of recent times. Aditya Birla group has acquired
the Jaypee Cement Corporation’s (JCCL) Gujarat unit for Rs 3800 crores. The Deal The deal
was finalized on 12th September 2013. It is to be completed in seven to nine months and it
will give Ultratech entry into Gujarat. For the Jaypee group, it will help cut a portion of its
Rs. 55,000 crores debt. Ultratech will take over all assets and liabilities of the Gujarat unit at
closing and the consideration will be the enterprise value less liability taken over. Birla, has
planned to finance the acquisition through equity of Rs.150 crores, debts worth Rs.2000 crore
and the reminder of Rs.1650 crore through internal accruals. Rationale of the deal the
chairman of Ultratech Cement Kumar Mangalam Birla announced that with this acquisition
of 4.8 million tonnes capacity, their installed capacity will increase to 59 million tonnes per
annum. With new expansion plans in Karnataka, Rajasthan and Madhya Pradesh set to go on
stream by 2015, Ultratech’s capacity is expected to touch 70mtpa, thus further strengthening
their market leadership. The deal will give a stronger production base to Ultratech in Gujarat
to serve the local market; the deal will also strengthen their coastal footprint, enabling them
to cater to other regions as well as exports. Ultratech will also benefit from the Rs.350-380
crores unrealized depreciation and tax set-off against the losses incurred by Jaypee Cement.
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 this year. Jaypee Cement had Rs.350 crores of carry
forward losses. The sale of the Gujarat Cement plant will reduce Jaypee group’s debt by
Rs.3650 crore. I perceive the deal as the important move for Ultratech in its expansion
strategy. Operational synergies are expected from this deal. Before this acquisition Ultratech
was country’s 2nd largest cement company. This acquisition will not dilute the ranking for
the company but it seems to provide advantage to Ultratech in competitive positioning. The
deal is equally significant for JP cement, it will help company cut its debt by 6.63%. If we
compare the valuation of Jaypee Cement with its peer, this restructuring plan seems to be a
distress sale for the company. Looking at top 5 cement companies in India in terms of
production capacity, ACC Ltd head the list followed by Ultratech Cement, Jaypee Cement,
Ambuja Cement and India Cement. After the transaction the Jaypee Group’s Cement will
come down to 33 million tonnes and it will continue to be the 3rd largest cement
manufacturer in the country.

 Balance sheet of UltraTech Cement before and after Merger is Given

below
 Mar 17 Mar 16
12 months 12 mths

Equity Share Capital 274.51 274.43

Total Share Capital 274.51 274.43
Reserves and Surplus 23,666.50 21,357.40
Total Reserves and Surplus 23,666.50 21,357.40
Total Shareholders’ Funds 23,941.01 21,631.83

Long Term Borrowings 4,200.12 2,667.89

Deferred Tax Liabilities [Net] 2,773.56 2,431.99
Other Long-Term Liabilities 37.27 7.98
Long Term Provisions 270.73 252.73
Total Non-Current Liabilities 7,281.68 5,360.59

Short Term Borrowings 1,015.84 2,338.75

Trade Payables 1,713.80 1,581.46
Other Current Liabilities 5,169.33 7,216.08
Short Term Provisions 159.43 161.86
Total Current Liabilities 8,058.40 11,298.15
Total Capital and Liabilities 39,281.09 38,290.57

Tangible Assets 22,898.23 22,376.71

Intangible Assets 333.53 310.83
Capital Work-In-Progress 877.76 1,414.48
Intangible Assets Under Development 0.63 1.08
Fixed Assets 24,110.15 24,103.10
Non-Current Investments 2,002.72 3,433.20
Long Term Loans and Advances 55.53 65.89
Other Non-Current Assets 637.64 952.93
Total Non-Current Assets 26,806.04 28,555.12

Current Investments 5,405.95 2,359.98

Inventories 2,224.99 2,277.61
Trade Receivables 1,276.17 1,414.89
Cash and Cash Equivalents 2,217.74 2,235.20
Short Term Loans and Advances 123.95 118.99
Other Current Assets 1,226.25 1,328.78
Total Current Assets 12,468.35 9,721.00
Total Assets 39,281.09 38,290.57

Contingent Liabilities 6,180.58 4,531.96

Raw Materials 0.00 0.00

Stores, Spares and Loose Tools 0.00 0.00
Capital Goods 0.00 0.00

Expenditure in Foreign Currency 0.00 0.00

Dividend Remittance in Foreign Currency - -

FOB Value of Goods - -

Other Earnings - -

Bonus Equity Share Capital - -

Non-Current Investments Quoted Market Value 605.90 408.34

Non-Current Investments Unquoted Book Value 1,396.82 3,024.86

Current Investments Quoted Market Value 109.16 10.36

Current Investments Unquoted Book Value 5,296.79 2,349.62
Impact of the deal on UltraTech:
 With this acquisition of 4.8 mtpa capacity, installed capacity of UltraTech will
increase to 59 mtpa, which would further strengthen the market leadership of
UltraTech in Indian cement sector.
 The acquisition would meet the need of UltraTech to enhance capacity in
Gujarat:
 Cement market in Gujarat grew at 11.7 per cent in the last seven years;
also, Gujarat is strategically well located from the point of view of exports;
 Existing plant of UltraTech in Saurashtra, Gujarat is presently operating at 95%
capacity and they need optimal volumes to feed into Mumbai, Kochi and Sri
Lanka where they have grinding units. UltraTech required additional volume to
serve local, coastal & export markets.
 UltraTech lost volume in Gujarat post disposal of Shree Digvijay Cement Co.
Ltd.;
 UltraTech had built capacities in all zones, except Gujarat region;
 Access to a jetty would also enable UltraTech to ship cement to new markets
 UltraTech proposes to increase the capacity utilisation at the JCCL plants from
62% to 85% in the coming years. With this along with other measures such as
increase in operational efficiency, increase in the proportion of blended cement
from current 15%, increase in trade sales from current 35% and with conversion
of Jaypee brand into the UltraTech brand, UltraTech anticipate to increase the
operational performance of acquired unit.
 UltraTech is expecting synergy gain of approx. Rs 30-40 core a year from this
deal on account of manufacturing, marketing and supply chain synergies.
UltraTech has an existing plant in Saurashtra, Gujarat and now with the
acquired assets of JCCL in Kutch, synergistic benefits will increase on
increased coastal and clinker movement.
 The grinding units of JCCL will help UltraTech cut its logistics expenses due to
proximity to key markets.
 With around 5479 hectares of land and 500MT of mining reserves, there is a
potential for UltraTech to double the capacity at the acquired cement unit in the
near future. In view of this, UltraTech believe that the transaction will be value
accretive in the next three years.
 Acquisition comprised of the high quality recently commissioned cement plant
with latest technology with immediate cash generation potential.
 UltraTech will also benefit from the tax perspective on account of carried
forward business losses and unabsorbed depreciation of the acquired unit of
approx. Rs 350 crore.

Impact of the deal on Jaypee Group:

 After the transaction, the Jaypee Group’s cement capacity will come down to
33 mtpa and it will continue to be the third-largest cement manufacturer in the
country after Aditya Birla Group and Holcim Group.
 The deal will help Jaypee Group pare its mounting debt of Rs 55,000 crore by
around Rs 3650 crore.