UltraTech deal a win-win; valuation at Rs 900cr/MT: JP Asso

Latha: Well now a JP investor would want to know what is left in JP? You still have about 22 million tonnes of cement making capacity among other things. What would be a revenue run rate with the assets that you have left behind in JP Associates?

A: First of all let me begin with that this organisation is now more than 45 year old. This company JP Associates has done well, when India has done well. When India has not done well the company also got stagnated. We grew at a very hectic pace from 2002 onwards and we all know the type of work this group has done. I don’t have to say but with the grace of god, because of vision of Shri Jayprakash, our organisation did people of India proud of.

You asked a question what is left in JP. In JP a lot of credibility, lot of integrity, lot of humility is left. In JP a lot of cement capacity is left, almost 20 million tonne of cement capacity. In the business of engineering construction the engineering, procurement, construction (EPC) business which is strength of JP that is very much intact. The real estate which is housed in JP that is there, the hospitality business, all for the last financial year. The company Jal had clocked a revenue at Rs 13,000 crore and this transaction is a statement that when we are fighting the after effect of the sluggish economy in our country my father, who has been at the forefront guiding this company, he gave us wisdom that when the time is tough you have to divest some good things and that is why in this year, as 2014 is coming to an end, almost Rs 20,000 crore of disinvestment took place. Rs 9,700 crore in hydro and Rs 1,400 crore of two plants in Madhya Pradesh and other than that was Bokaro and grinding unit at Panipat.

But the fact is that with grace of god that Jayprakash Associates I want to tell all my esteemed investors and also the shareholders and stakeholders that we are working on a plant which we discussed communicated even though people took it with a pinch of salt but there is enough record even with your channel last year there was a problem in 2013 in Uttarakhand people wrote us of for Vishnuprayag project that we had started.

Sonia: You were just giving us your deleveraging plans. Are there any further asset sales that one can expect in this fiscal itself, you have a plant in HP, Bhilai, you have a thermal power asset in Bina as well. Anything more that you are looking to sell by the end of this fiscal or the next calendar year?

A: Actually let me be very candid here. There are many options when you are fighting the sluggish economy. Companies have chosen as per their own plans their method. We have adopted another method and we don’t want to give pains to our banks, so we started divesting. And even though this company JP Associates, the group, JP Group as is know in assets we are not even in first 20, in revenue we are not in the first 20, in profit we are not in first 50 but in terms of divestment we are number one and that is the reason, the objective was not to give pains to the banks.

As far as your query, you asked me pin pointedly whether this will be done or not done, we have done what nobody has done so far and I am sure the economy will turn for better. So much of expectation, so much need that yesterday’s verdict in Jharkhand everybody is believing the new government at centre will actually do what the nation of 1.2 billion wants, a good economy and prosperity for all. So, we want to be fit and I am sure that these decisions are a signal that how companies can also trim their debt not only by operational efficiency but also by selling some of the assets and giving comfort to the banks.

Latha: Will you be able to generate Rs 12,000 crore revenues with the assets left behind per year? What is the expectation in the next year itself and how much will the interest come down? You have been paying about Rs 700-800 crore interest every quarter, how much does that come down to?

A: You have done your maths reasonably well. The fact is that this transaction Memorandum of Understanding (MoU) has been just signed and it will take five to six months to fructify. So the effect will only be visible after June hopefully. So the point is that yes, today after this divestment debt in the main company would come down to around Rs 20,000 crore. At the same time I must say, if you will do your analysis because just last night I was seeing a program on your channel there was good analysis of the well wishes on which transaction happened I am surprised that you have not even talked about it so far. But, the point is that Ultratech decided to take these assets after taking our Gujarat cement plant that shows the faith which they have in our assets and the quality of our assets and otherwise such transactions do not get repeated and at a better valuation.

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So this is what I have always talked that our assets are some of the best assets. As far as JAL topline is concerned I am very confident that the EPC business has been very sluggish in last three years because if you will do your analysis there hardly have been contracts in which we have been number one. In hydro sector, in roads your analysis shows, newspapers are screaming that how developers are having tough time. So, unless the EPC contracts come out, the hydroprojects come out India can construct 150,000 megawatt of hydro power. So these projects once they come our EPC business alone would be accounting for Rs 5,000 – 6,000 crore of turnover. So I am very confident that even for FY16, the turn over as a company we will be clocking not less than Rs 12,000 crore this is what I am confident.

Latha: You wanted to speak about the valuations. From one interpretation your valuations would look like about USD 130-140 per tonne. If you had gone to a foreign player would you not have got more?

A: I would like to be enlightened on this analysis of USD 125 per tonne.

Latha: Not USD 125, around USD 130 if we assume that the extra clinker capacity that you have for which you don’t yet have a cement plant, if you deduct that and that unless Ultratech puts extra cement capacity to use that it wouldn’t yield them immediately anything. So, adding all that we would get maybe perhaps USD 130-140 dollar. In any case why didn’t you get to a foreign player, maybe waited for a little longer?

A: In cement whatever is happening in our country I am keeping a close track and I would like to draw your attention on what we could do in terms of a grinding unit in Bokaro where 75 percent were sold to Dalmia and that was at an EV of about USD 88 per tonne which was only for a grinding unit where supply contracts for slag and clinker. Now Gujarat transaction happened at around USD 130 per tonne which was around Rs 800 crore per million tonne because rupee and dollar ratio keeps on changing.

Now when it comes to this two plants at Bela and Sidhi in Madhya Pradesh. From any calculation if I have to do today the grinding capacity is 4.9 million tonne cement then the valuation is something much more but let us safely say for clinker which you rightly pointed out let us say, 6 million tonne, for this they have to spend around Rs 400 – 500 crore valuation is around Rs 900 crore per million tonne and I am very happy and even because I am an Indian also that an Indian cement company led by very creative like Mr Kumar Mangalamji would be the first company to become 100 million tonne cement company from India. So, if our divestment helps him then I am happy as Indian and I wish him success and it was a win-win situation for both. So we decided to ink a deal with him.

Sonia: So, what is the total grinding capacity of the other plants that you have currently in HP and in Bhilai and do you think you could get similar valuations if and when you decide to sell these?

A: Tomorrow is Christmas and I wish that Santa also blesses us as we don’t want to disinvest any more cement plants but the capacity is after this divestment capacity of cement business of group operational will be 21 million tonne and ultimately by next year it will be 24 million tonne because one plant in Karnataka is in final stage of completion.

Latha: If you can tell us therefore what might the debt come down to? From around Rs 750 crore quarterly will your tally go down to about Rs 500 - 600 crore?

A: That is a fair estimate and let us just complete this. We will be signing a definitive agreement next month, by then this would become very clear.

Sonia: You have been, because of the duress on your balance sheet selling a lot of your profitable units at a very fast pace. For the next couple of years what is your vision in terms of which pocket would your strength be the most; will it be in cement, will it be in real estate, will it be in power? What should an investor really look out for?

A: Very pertaining question. We never thought in 2008 when the Lehmann Brother crisis happened that India would come out of it and in 2010 almost things became quite normal only to go down from 2012 onwards. We could have gone in a different way, not divested, represented to banks but my father and we as a company decided that yes, we will go have a creditable way, we will make ourselves trimmer and reduce debt and prepare and with one conviction that earlier the funding was 35 percent equity 65 percent loan, now it would be like to grow with 65 percent equity, 35 percent loan. That is one lesson which we have learnt as an organisation because downturn can happen due to various reasons and sometimes self inflicted vows as it happened in our case in our country but yes, going forward we would survive in cement, we would remain in cement, god willingly it is 22 million tonne, 24 million tonne it would be next year i.e. 2016 but yes, new capital expenditure (capex) would happen, not on loans.

A lot of real estate companies would be able to monetise. In fact you would see as economy comes up as we all hope so, we would sell some land and reduce the debt further and real estate would be an important segment but yes, our very segment will also remain EPC business where we will be concentrating and I can tell you in terms of size today we may shrink a bit, but in terms of credibility this company would outshine many and time will tell and I hope and I pray with good wishes and faith of all of you and the investor and shareholders that this company remain very healthy for decades to come.