Binani acquisition can aid UltraTech’s low-cost expansion, say analysts

By: | Published: November 21, 2018 5:37 AM

Acquisition of Binani Cement can provide UltraTech with an opportunity for low-cost expansion given the former’s good limestone reserves, according to analysts.

Binani Cement resolution professional , binani cement, National Company Law Tribunal , ncltUltraTech Cement reported a near 11% year-on-year decline in its consolidated net profit to Rs 377 crore for the three months of July-September 2018.

Acquisition of Binani Cement can provide UltraTech with an opportunity for low-cost expansion given the former’s good limestone reserves, according to analysts. Binani has two limestone mines in Sirohi, Rajasthan, with reserves and resources in excess of 450 million tonne.

“Binani is operating at low plant utilisation with low profitability due to liquidity issues. While UltraTech has a good track record in turning around operations, we expect the acquisition to be earnings dilutive in the initial 1-2 years. Binani has two large limestone reserves in Rajasthan, which can aid low cost expansion—we believe this can create value over the longer term,” analysts at Kotak Institutional Equities said in a recent report.

However, similar to the earnings trajectory post the acquisition of Jaiprakash assets, the acquisition of Binani Cement can be earnings dilutive in the initial 1-2 years… which will depend on plant utilisation and profitability improvement, analysts said. UltraTech Cement’s share price closed down 1.42% at Rs 3,976.50 on Tuesday on BSE.

At an enterprise value of Rs 7,900 crore, the transaction value works out at $100 per tonne. Binani has a capacity of 11 million tonne per annum, of which 6 MTPA is in India and 5 MTPA overseas. The company earned Ebitda per tonne of less than Rs 200 in FY17 versus UltraTech’s `930 per tonne, analysts noted.

“The profitability of Binani Cement has remained weak over the last few years due to low capacity utilisation amid liquidity issues and the company has reported net losses… UltraTech has a track record of turning around operations – the company has already made significant improvement at acquired assets of Jaiprakash Associates with plant utilisations improving to over 70% from 15-20% when it was acquired, and improvement in operating Ebitda,” they said.

UltraTech Cement reported a near 11% year-on-year decline in its consolidated net profit to Rs 377 crore for the three months of July-September 2018. The company’s revenues during the period increased by a good 20% y-o-y to Rs 8,151.5 crore, while the Ebitda at Rs 1,226.3 crore came in lower by 8.3% y-o-y. The company’s consolidated net debt as on September 30, 2018 stood at Rs 14,806 crore – up from Rs 14,062 crore as on March 31, 2018.

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