How Dalmia Bharat benefits from acquiring Jaypee’s assets for ₹5,663 cr. What should investors do?

At around 10.52 am, Dalmia Bharat traded at ₹1,832.80 apiece down by 3.83% on BSE. The shares plunged by at least 5.1% with an intraday low of ₹1,807 apiece in the early deals. Its market cap is over ₹34,361 crore.

Similarly, JP Associates shares traded at ₹11.18 apiece down by 4.77% on BSE, while JP Power shares performed at ₹8.03 apiece lower by 3.25%. So far in the day, on BSE, JP Associates shares have nosedived by nearly 6% and JP Power’s stock dropped by nearly 5% on BSE.

As per the regulatory filing on Monday, Dalmia Bharat’s wholly-owned subsidiary Dalmia Cement (Bharat) inked a binding framework agreement for acquiring clinker, cement, and power plants from Jaiprakash Associates which is the flagship company of Jaypee Group, and its associates. The acquisition will have a total cement capacity of 9.4 MnT (along with a Clinker capacity of 6.7MnT and Thermal Power plants of 280MW). These assets are situated in the states of Madhya Pradesh, Uttar Pradesh, and Chhattisgarh.

Dalmia Bharat will acquire the cement assets from Jaypee at an enterprise value of ₹5,666 crore.

In its filing, Dalmia stated that the acquisition will enable the company to expand its footprint into the Central Region and will represent a significant step towards the realization of its vision to emerge as a Pan India Cement company with a capacity of 75 MnT by FY27 and 110‐130 MnT by FY31.

Currently, the transaction is subject to due diligence, requisite approvals from lenders/JV partner of Jaiprakash Associates and regulatory authorities.

How does Dalmia Bharat benefits from this acquisition? 

In its report, Motilal Oswal stated that Dalmia Bharat to enter Central India with the acquisition of cement assets from Jaypee. It said, “the management had earlier indicated its aim to reach a grinding capacity of 70-75mtpa by FY27E. The completion of this acquisition will enable the company to enter into Central India with a material capacity share of ~10% (on current installed capacities in Central India) and one step forward toward becoming a Pan-India player.”

According to Motilal’s report, Central India is an attractive market with favorable demand-supply. The region has one of the lowest per capita cement consumptions at ~170kg v/s industry average of ~250kg in the entire country. Central India’s cement demand (~54mt) represents ~15% of the country’s total cement demand.

Also, mergers and acquisitions activity in the sector has led to increased consolidation in Central India. At present, about ~76% (FY23E) of capacity share in the region is dominated by the top five players. The region’s capacity utilization currently is around ~75%.

In the recent past, the region also witnessed the entry of new players like SGC, JK Cement, and JK Lakshmi Cement among others. Also, recently, JSW Cement also acquired limestone reserves from ICEM and announced its plans to set up a grinding capacity of 5mtpa.

Motilal estimates Central India to register an effective supply addition CAGR of ~9% over FY22-25E, while demand CAGR is expected to be 7-8% over the same period.

Further, Motilal’s note stated that post-completion of the ongoing expansions and acquisition as announced, Dalmia Bharat’s grinding capacity will increase to ~59mtpa by FY24E (the third largest player in the country, based on the expansion plans announced by the industry players).

On the valuation of Dalmia Bharat, Motilal’s note said, “the stock trades at 13x/10.4x FY24E/FY25 EV/EBITDA and EV/t of USD89/86, respectively. It has traded at an average EV/EBITDA of 10.4x/9.3x over the last 5/10 years. We reiterate our Buy rating on the stock with a TP of ₹2,000.”

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.