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Kumar Mangalam Birla believes it is a good asset, it is well priced, it is a fair value. It fits in with our overall scheme of things strategically.
I think we have another year-and-a-half to two years of pain in cement. I see that the industry would have approximately an 8 percent rate of growth in the long-term and for us.
Kumar Mangalam Birla
Kumar Mangalam Birla, chairman of Aditya Birla Group, said the JP Associates cement plant deal, which has been in the making for the better part of a year, will increase UltraTech 's production capacity significantly. He believes the acquisition fits in with the overall scheme of things strategically.
On the economy as a whole, Kumar Birla says he is seeing the first glimmer of hope. The government has taken few initiatives which are path breaking, he adds. He is hoping for better times in next two quarters. "I am feeling less gloomy than what I felt three months ago," he adds.
Additionally, he said that the rupee volatility isn't giving him any sleepless nights as the company has gone for the conservative path of hedging all dollar exposure.
Below is the verbatim transcript of Kumar Mangalam Birla's interview on CNBC-TV18
Q: What is your view on the deal?
A: We believe it is a good asset, it is well priced, it is a fair value. It fits in with our overall scheme of things strategically which is why we have gone ahead with it.
Q: Why did it take almost two years to negotiate this transaction?
A: It is basically a negotiation right? When you do a due diligence there are so many issues that come to the fore and its negotiations around those, its negotiations around price.
Q: It took you less time to acquire Novelis
A: It has been about a year. Essentially it boils down to price. It also boils down to some of the conditions precedent to completing a transaction whether it is indemnities so on and so forth. I think these are all part of any transaction.
Q: Did you mention indemnities for any specific reason?
A: That are the kind of issues that transactions like these would involve in terms of negotiations.
Q: Did large part of the negotiation also focus on the fact that the cement unit that you are buying owes money to the parent company and you are trying to work out how you would discharge that liability because that amounts to Rs 1,650 crore in cash that you are paying.
A: I think just the total debt that will get transferred with the unit was a question that was debated for a while because that actually determines the total consideration that we would pay out by way of equity.
Q: Why did they settle with you because it seems that they had better offers in hand like 6-8 months ago, a year ago. The word on the street is that they had valuations going all the way up to USD 130, USD 140. So, I am just curious to know?
A: That question you will have to ask them.
Q: But since they are not here in front of me I am putting that question to you.
A: I have no idea what values they were offered and why they decided to go with us.
Q: Most of the last year was spent in negotiating down the price?
A: It is not that we were talking to them or talking to each other through the year. These discussion happen and break off and sort of start again.
Q: Your debt to equity ratio has gone up from 0.31 to 0.54 that is what your management team said in the presentation. At this level do you feel comfortable to be able to look at other fairly sizeable acquisitions as well in the market place and if you think a recovery is going to come here in a year and a half in the cement business are you looking at more consolidation opportunity in that next 12 to 24 months?
A: There are two parts to this- I will be happy to look at other acquisitions, but there is nothing really that we are looking at that’s interesting or that looks like it could actually materialise.
However, in-principle we have got a very strong balance sheet. We have got strong cash flows happening and it is a good time for us to look at consolidating the cement industry.
Q: Where do you see the cement industry? Are we at the bottom of the down cycle or do you still see many more quarters of pain because you have timed your acquisition well you have bought in a down cycle at a fairly good price?
A: I think we have another year-and-a-half to two years of pain in cement. I see that the industry would have approximately an 8 percent rate of growth in the long-term and for us, it has always been about building businesses for the next 10-30 years. Therefore, this sort of down cycle for the next two years is in a sense an aberration.
Q: How are you tackling the rupee volatility?
A: We have all our dollar exposure hedged. It is a conservative view that we have stuck with. We believe very simply that we don't have the expertise to take a call on currency and that's not the business that we are in - trading in currency. Therefore, all our debt is hedged fully and therefore no impact on us.
Q: What more can you tell on foraying into banking?
A: I think we have got great prospects I think we have ticked all the boxes. I don't see any reason why we shouldn't be awarded a license. So, I is very hopeful of getting a bank licence.
Jaiprakash Asso stock price
On March 11, 2014, Jaiprakash Associates closed at Rs 48.75, down Rs 1.1, or 2.21 percent. The 52-week high of the share was Rs 83.60 and the 52-week low was Rs 28.40.
The company's trailing 12-month (TTM) EPS was at Rs 1.97 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 24.75. The latest book value of the company is Rs 60.08 per share. At current value, the price-to-book value of the company is 0.81.
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