Dalmia Bharat buys Jaypee Group's cement biz for ₹5,666 cr

Dalmia Cement (Bharat) Ltd. (DCBL), a wholly-owned subsidiary of Dalmia Bharat, on Monday signed a binding agreement to acquire clinker, cement and power plants from Jaiprakash Associates Ltd. and its associate for ₹5,666 crore.

The cement plants, situated in the states of Madhya Pradesh, Uttar Pradesh & Chhattisgarh, have a total capacity of 9.4 million tonnes along with clinker capacity of 6.7 million tonnes and thermal power plants of 280 megawatt.

The acquisition will enable Dalmia Bharat to expand its footprint into the central region which has one of the lowest per capita cement consumption in India. Dalmia Bharat is looking to emerge as a pan-India cement company with a capacity of 75 million tonnes by FY27 and 110‐130 million tonnes by FY31.

In order to repay the loans of lenders and concentrate in its other core areas of working, Jaiprakash Associates has decided to divest from the cement business completely. "Jaiprakash Associates ltd. (JAL), the flagship company has been taking steps to reduce its debt and repay to lenders and meet its commitments on pro active basis. In this regard, JAL had divested more than 20 MTPA cement capacity in favour of M/s. UltraTech Cement Limited during 2014 and 2017, while selling its controlling stake of more than 2 MTPA cement capacity to Dalmia Group in 2015," says Manoj Gaur, executive chairman, Jaiprakash Associates.

The deal comes months after the Adani family forayed into the cement industry by buying out Holcim's stake in Ambuja Cements and ACC. The value for the Holcim stake and open offer for Ambuja Cements and ACC was around $10.5 billion, making it the largest ever acquisition by Adani Group. The country's cement sector witnessed further consolidation in October when India Cements sold its entire stake in Springway Mining Private Ltd to JSW Cement for ₹477 crore.

Rating agency ICRA has revised the operating profit margins of cement producers downwards by 160-200 basis points in FY23 when compared to the earlier estimates in April 2022 due to sustained cost-side pressures.

The all-India cement volumes increased by 11% year-on-year at 187 million million tonnes in the first half of FY23 supported by continued strong demand from rural housing and pick-up in infrastructure activity.

Cement volumes are expected to grow by 7-8% in FY23 to around 388 million MT (16% higher than pre-Covid levels of 334 million MT in FY20) aided by demand from housing, both rural and urban, and the infrastructure sectors, says ICRA.

According to CRISIL, operating profitability of cement makers will decline around 15% year-on-year to ₹900-925 per tonne in the financial year 2022-23,  as increase in realisations will not be enough to offset the increase in prices of coal, petcoke and diesel that has pushed the average cost of production higher.

The higher demand will mitigate the impact of lower profitability on absolute operating profits and cash accruals of cement makers, cushioning their credit profiles.

"Cement volume growth this fiscal will be driven by non-housing segments, wherein offtake is expected to rise more than 15%. Demand from the infrastructure segment will be aided by government spend, while industrial/ commercial demand will be driven by growing investment in data centres and warehousing, and the low base of the previous fiscal," said Koustav Mazumdar, associate director, CRISIL Research.