GP Goenka undecided on full exit from Andhra Cements

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Infrastructure and real estate major Jaypee Group acquired a controlling stake in GP Goenka group's Andhra Cements last month. It was the second transaction between the two groups in the last 18 months.

The deal involves Jaypee Development Corporation, a privately held arm of the group, acquiring 66.7% in Andhra Cements for Rs 234.7 crore.

Speaking to CNBC-TV18, chairman GP Goenka said, the stake sale will be done through share purchase from his group and a preferential allotment of fresh shares, followed by an open offer.

While Rs 177 crore will be used for fresh equity infusion, the remaining will be used to buy a part of the stake currently held by the GP Goenka group.

GP Goenka said he has not yet decided whether to fully exit Andhra Cements. "The cement industry is being hampered by low order inflows," he told the channel.

Below is an edited transcript of the interview. Also watch the accompanying video.

Q: The permissions that you sought from the postal ballot were largely for that sale of the plant to Jaypee?

A: That's right. They are putting fresh equity and as well as going for the open offer. This is the part of the process that is being implemented to handover the control to Jaypee.

Q: So when does the control get handed over to Jaypee? Would it mean fairly different management in charge at Andhra Cement?

A: Currently, it's a bit of a limbo in the sense that the board resolution to enhance the share capital has been put into place. But according to SEBI guidelines they cannot be allotted these preference share issue until the open offer is completed. That open offer should get completed towards the second half of January and only then a transfer will take place.

Q: After all this preference share allotment and selling part of your stake, you will still be left with about 6% stake and perhaps the management control as well. Are you planning to sell this remaining 6% stake maybe anytime soon since you have such a strong relation with the Jaypee Group?

A: I have still not made up my mind as to what to do with that 6%. We will take a call at a future date. The management will be with Jaypee Group, so I have nothing to lose in the process. Even if I were to hold onto those shares I don't think I will be a loser.

Q: The new promoters will be infusing money into the company via this preferential share allotment. Are there any indications on whether they will be using this money to reduce the massive Rs 400 crore plus debt on the company's book?

A: Really it is not over-leveraged company. If I were in the decision as to how they use the money, I would rather put the money for completion of the project of which two third is complete and one third is still under completion. So we will complete that, supplement the working capital and pay off the debts rather than clear off the situation of debt. That would be my preference. What they do is their business.

Q: There were a couple of analyst reports after the deal which indicated that the enterprise value (EV) per tonne at which the deal was worked out comes to about USD 68 a tonne. Now of course the dollar itself has become expensive. Other deals, a couple of years ago - Holcim's deal was done at a much higher price. Why did you settle for this kind of a price?

A: Well, frankly one has to take the India story. You have to take the cement story. You have to take the locational disadvantages that Andhra has to offer. So, considering all this I would say it was at a very fair price. Yes, Holcim deal was done at a much higher price, but then India story was different. Today unfortunately, it is reflected in the kind of stock market and the FDI inflow. Everything seems to have come to a grinding halt. So, India story is not terribly hot.

Q: We have heard some very despondent statements from CEOs and promoters like you in the past several months. But you are sounding particularly despondent. Are you not seeing any end to the kind of downturn and lack of capex? You don't expect things to turn around maybe in a year or so?

A: Well, certainly not in 2012. I hope I am wrong, but I can't see any major improvement coming in 2012.

Q: How bad will 2012 be? Will we see some kind of a bleak growth because this year has been fairly flat for most of the industry?

A: I wouldn't be surprised if on the industrial front it is as depressing as it can be. I would say 2008 was much better. There was recession in the rest of the world but our order books were full. Today our order books are practically empty and on top of it the inflows have stopped. Government is fighting for curbing inflation which is a very necessary aspect of it. Reserve Bank continues to believe in controlling inflation through monetary policy which is not right. But we are much better equipped to adjust the situation.

Q: What are the top two or three problems that you face as an industrialist especially as a cement maker? Was it interest rates or are there some other things that are also going wrong in the country?

A: I wouldn't like to sound too critical of what's happening in Delhi but the world certainly feels that India story is not as hot as it was a year ago. That's what matters at the end of the day. There are some good points being achieved but currently infrastructure projects have come to a grinding halt.

Q: All this is taking a toll on the volumes, but cement prices has been fairly resilient more on account of transport and logistics issue. Is the slowdown in the industry likely to take a toll on the cement prices as well and we can expect a significant reduction in the prices, because utilisation also has not been very high?

A: Utilisation is rather low but the cement prices have held reasonably firm over last six months which is rather surprising. The demand certainly is at a much lower level than what it was over the last few months, particularly in Andhra where there is production situation anyway.