UltraTech signed a definitive agreement with Jaiprakash for the acquisition of 21.2 mtpa capacity for 164 billion while leaving out a Karantaka plant from the deal which is in close proximity to one of UltraTech’s plant. The amendment to the MMDR Act is a step closer after passing of the bill in the Lower House and can facilitate timely integration of the acquired assets of Jaiprakash. The deal consolidates the industry and also helps increase UltraTech’s market share meaningfully in central, south regions.
The successful amendment to the MMDR Amendment Bill, 2016 will facilitate timely integration of Jaiprakash’s assets with that of UltraTech. The current law restricts such transfers to mines awarded through government auctions only. The amendment will allow UltraTech to acquire captive limestone mines.
We estimate the acquisition will be earnings dilutive in the initial few years. The operational capacities of Jaiprakash were at 65% utilisation in FY15 and earned Ebitda of 6 billion; the current Ebitda is below 600/tonne against 900/tonne for UltraTech. The management said they would start a re-branding process including quality changes to bring realisation at par with that of UltraTech Cement in the first few months.
The acquisition, when completed, will help consolidate the industry besides increasing the already dominant presence of UltraTech.