The cement division of Jaiprakash has an installed capacity of four million tonnes, and market sources say the acquisition deal, if finally struck, may aggregate to over Rs 1,000 crore. Others in the race include two of the country's large cement producers, ACC and Larsen & Toubro.

"Cemex has been in talks to buyout the cement business of Jaiprakash Industries. The talks are still premature and may not fructify soon," sources close to the deal told The Financial Express. However, company officials declined to comment on the issue.

Following Lafarge's entry into the domestic market, sources say, Cemex has also been exploring the acquisition route to make its maiden foray into India which is now the third largest producer of cement worldwide. The deal, if clinched, will place Cemex in a strong footing in the centraland northern markets. Cemex is the world's third largest cement producer.

Jaiprakash Industries, which is a major player in the region, has two cement manufacturing units--Rewa with an installed capacity of 2.5 million tonnes and the relatively recent Bela, which has annual capacity of 1.5 million tonnes.

Cement analysts say going by the replacement cost method of valuation, the division as a whole will cost the acquirer at least Rs 1,000 crore. "Replacement cost generally hover between Rs 3,000-3,500 per tonne. Because of the disadvantage of being located in central India, the two units should fetch a price of around Rs 2,500 per tonne, which translates into a consideration of around Rs 1,000 crore," said a cement analyst.

The Jaiprakash scrip has been touching new highs at the stock markets with the stock price gaining by almost 300 per cent over the last two months. At the Bombay Stock Exchange (BSE), the scrip closed at Rs 38.40 on Thursday after touching a high of Rs 39.90. Around 5.50 lakh sharesof the company changed hands at the exchange.

Jaiprakash Industries, which also has interests in real estate, has run up an outstanding debt of around Rs 1,227 crore on an equity base of Rs 858.28 crore and has been asked by financial institutions (FIs) to get out of the cement business which has been a drag on its bottomline. The company has given the mandate to SBI Caps to find a buyer for its cement division.

Jaiprakash Industries has ended with a net loss of Rs 40 crore in 1997-98, and losses are expected to be higher during the last fiscal.

Capacity utilisation at the plants has been low. In the first half, the Bela unit has produced 5.11 lakh tonne of cement at a capacity utilisation of 71 per cent. The Rewa unit produced 8.23 lakh tonne at 72 per cent capacity utilisation.

Due to the locational disadvatnage, freight cost as a component of the net cement realisation for Jaiprakash is on the higher side. Industry analysts, however, feel the glut situation in the Madhya Pradesh region is purelyrelative and things are already changing for the better. "If one takes a long-term view, it definitely makes sense for cement companies to go in for acquisitions in the region now," an analyst said.

Insight

An attractive buy

The western region, especially Madhya Pradesh, is a major contributor to the Northern market as far as cement despatches go. MP has the highest capacity in a state because of limestone availability. Jaiprakash's despatches are in Uttar Pradesh, MP and Bihar. It is one of the highest cost producers (excluding mini cement plants) in the country. For the year ended June 1998, the power consumption per tonne of cement produced was 123 units (103 units) which is the highest in the industry. Neither the material cost nor the cost per unit of self generated power indicates any efficiency. The price per tonne being negotiated will take into account all these factors. Cemex's due diligence might reveal some different figures. The location as well as the cost structure does notmake it an attractive buy unless it is at a very low cost per tonne.

-- Urmik Chhaya