Acquisition to up Birla Corp‘s capacity by 50%: Systematix

Birla Corporation today informed BSE that it intends to acquire Jojobera and Sonadih cement businesses from Lafarge India. Jojobera is located in Jharkhand and Sonadih is located in Chhattisgarh.The transaction would be funded through cash reserves and incremental debt, said the company. The company already has plants in Rajashtan, MP, UP & West Bengal with current capacity of 10 mtpa.According to Jaspreet Singh of Systematix Shares acquisition of these cement units would increase the company’s capacity 50 percent and would help it grow meaningfully in size. The acquisition is positive for the company both from strategic as well as growth perspective, he said.He is also not overly worried about the debt the company would have to take because of these acquisitions because the company is currently into net cash.Below is the transcript of Jaspreet Singh's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: Birla Corporation bought cement units of Lafarge Jojobera. You think this is good for Birla Corp?A: Yes, from a strategic perspective and growth plans definitely yes, because it will was operating at sub 10 million tonne capacity for the last couple of years without having had the opportunity to grow organically. Therefore, from that perspective it adds significant 50 percent to its existing capacity that is 5 million on existing base of 10 million tonnes per annum.
Purely from arithmetic perspective, it could be earnings dilutive because the company itself is trading at USD 60 and this acquisition is USD 150 plus but purely from long-term growth and strategic perspective it is definitely positive for the company. Sonia: Would you be worried about the debt it may have to take on to its books? A: Not really because it is a net cash company today and Rs 5,000 crore acquisition may just be giving the company legroom to add a couple of Rs 1,000 crore debt which I do not think is meaningful given the overall prospective of having to grow by meaningful size and in a good region. Latha: How much would a new plant have cost them? A: Closer to USD 150. One need to know that it's an integrated unit; has a split grinding unit, comes with a lot of infrastructure and two very good brands also gets shifted and has an excellent management team. Latha: You have a price for Birla Corp? A: We do not have rating on the company presently.

Navin Sahadeo, Edelweiss Securities also shared his views on how the acquisition would benefit Birla. According to him on the face of it the value of Rs 5000 crore for the acquisitions seem quite less and so is lucrative for Birla. Watch video for his views.