JP Associates deal to boost UltraTech capacity: Angel Broking

The Jaiprakash Associates and UltraTech Cement deal is a positive development for UltraTech as its vision to create 100 million tonnes (MT) of capacity has finally come true, says Siddharth Purohit, Senior Research Analyst, Angel Broking Jaiprakash Associates plans to sell its plants in Madya Pradesh to UltraTech for Rs 16,500 crore. These plants have a capacity of 22.4 million tonnes. Post the deal, UltraTech will have a total capacity of 94 MT. Jaiprakash Associates' outstanding debt is over Rs 3,000 crore. The deal, hence, will çome as a breather for its lenders as well. Sharing his views on Vijay Mallya's debt repayment plan, Purohit said the focus shifts to how the deal will be structured and what will be the source of payment. Below is the verbatim transcript of Siddharth Purohit’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18. Ekta: With that kind of armour behind you what have you made about the possible announcement that we could hear from JP Associates and UltraTech Cement today and the fact that which balance sheet do you think will possibly see more of an impact and stock price hence? A: Definitely this deal is a very positive development for UltraTech because UltraTech had a vision of creating 100 million tonne of capacity over three- four years time. They are getting this deal at a descent valuation and more over so they are getting this assets in an geography where they didn’t have much of presence in the central part of India. So, from strategic point of view it strengthens the position of UltraTech and post this deal UltraTech will have a total capacity of more than 94 million tonnes which is almost in line with their targets. I believe is that this will lead to a further pricing discipline in the entire industry and whatever price corrections we saw in the last say couple of months particularly in post monsoon last year so that will not be that volatile going ahead. So, definitely, from cement perspective I would say that this is a very positive movement for UltraTech. From the other side if you say from balance sheet perspective as you said this is also a very positive move for the banks because banks also have huge exposure to the JP Group entirely. Banks will take a kind of relief that now they are assured of at least getting apart of the debt to be repaired now. Anuj: The other issue that we want to discuss is the whole Vijay Mallya issue and the fact that he is now ready to repay Rs 4,000 crore? Have you done any numbers in terms of which banks are benefited most? A: As we know that Mallya has offered this Rs 4,000 crore deal but however, what we would like to know that how that deal will be structured? What will be the source of funding? What will be the source of repayment? That clarity has to come through. If you talk about the banks which will benefit would be definitely the PSU set of banks. Most of the exposure is by PSU banks only led by State Bank of India (SBI) which has roughly Rs 1,600 crore of outstanding loans towards the group followed by IDBI and Punjab National Bank (PNB) which have roughly Rs 800 crore each. So, I believe that this deal if at all happens and if Mallya is ready to offer this deal then this is somehow a positive move for banks as well. All these loans have already been written off and if this trend continues and the legal issue continues for many more years then banks as such will have very difficult time recovering. As we know legal proceeding in India takes multiple years. We don’t know what the outcome would be. However, having said that I would say that definitely PSU banks will have a kind of positive move out of this.