UltraTech buys JP Associates' two cement plants in Madhya Pradesh for Rs 5,400 crore. Speaking exclusively to CNBC-TV18 on this latest development, Atul Daga, CFO, UltraTech Cement says the overall debt of the company will go up with the deal. The current debt of the company stands at Rs 7,500 crore.
Daga further says the company is confident of funding the deal with internal accruals. The cost of borrowing of UltraTech is close to 8 percent currently.Below is verbatim transcript of the interview:
Q: How are you planning to fund this acquisition?
A: We are confident of funding it with our internal accruals. Cost of borrowing should be somewhere between 8-8.25 percent.
Q: What is the total debt on books and if you add this deal to it does your overall debt go up?
A: Overall debt will certainly go up. Today, we have about Rs 7000-7500 crore of debt on our books. If we were to leverage the deal let us say 50 percent about Rs 2500 crore would be further leveraging that will be done. However, that does not create any trouble for the balance sheet; balance sheet is very healthy and ratios are very competitive.
Q: What is the current debt to equity ratio after taking the deal into account?
A: We will be less than 0.7 after the deal.
Q: Debt hasn’t been paired off yet, are you comfortable at these levels?
A: Yes, very comfortable. We are one of the best in the industry in terms of leveraging capabilities.
Q: The 4.9 million tonne that has been acquired as a part of this deal is functioning at around 80 percent capacity. Going forward, by when or what is the timeline that you are looking at to be able to take it to 90 percent capacity utilisation?
A: It should be about two to three years from now. As the deal consummates the first quarter that we will get to operate this fully will be typical court process that take place should be Q4 of next financial year FY16. And maybe FY18 onwards we should start seeing ramp up in the capacity.
Q: Until then will it still function at the current capacity level?
A: Around 80-85 percent, it will start ramping up immediately.
Q: So far the brokerages have analysed the deal and have reckoned that the deal will be EPS dilutive in the first two years, what is your view, can you break this up for us and a timeline that you can give to us with respect to when this could be EPS accretive?
A: It should not be EPS dilutive in all probability in the first year which is FY16, the first quarter which might be a drag. However, as we ramp up the capacity and it is already a cash positive business, a healthy cash generating business so we don’t expect it to be EPS dilutive in FY18. FY17 could be a fine print but FY18 is certainly positive.
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