JSW Group scion Parth Jindal-led JSW Cement, the cement subsidiary of the $12-billion diversified conglomerate, is on the prowl for funds.
The company, which deferred its initial public offering plans, is looking to raise Rs 1,500-1,800 crore for growth capital as it looks to strengthen its position in the domestic market, people with knowledge of the matter told Moneycontrol.
“JSW Cement is open to dilute a minority stake as part of the proposed deal and has mandated investment bank Citi to scout for potential investors,” one of the persons cited above told Moneycontrol.
“They want to expand their existing capacity by 60 per cent to 70 per cent, including on the clinker front, and will primarily look at private equity (PE) funds as suitors,” a second person told Moneycontrol.
Clinker is a nodular material which is used as the binder in cement products. According to recent reports, the company plans to shore up capacity from the existing 14 mtpa (million tonnes per annum) to 20 mtpa by 2022.
“There is a lot of private equity liquidity chasing transactions. JSW Cement has made its intent clear and is aggressively looking to consolidate. It will be interesting to see if this will be a pure equity deal or a hybrid, structured transaction,” added a third persons.
All the three persons spoke to Moneycontrol on the condition of anonymity. JSW Group and Citi declined to comment in response to emails sent by Moneycontrol.
JSW: Cementing its position
JSW Cement has an overall capacity of around 14 mpta, and its key markets are in South and East India. It has five facilities in Nandyal ( Andhra Pradesh), Vijaynagar (Karnataka) , Salboni (West Bengal), Jajpur (Odisha) and Dolvi (Maharashtra).
The company, a relatively new player in the sector, was incorporated in 2009 and offers three products: Portland slag cement, ordinary Portland cement, and ground-granulated blast-furnace slag.
In FY17, it ventured into high-value cement with the launch of Concreel HD. The company clocked around Rs 3,000 crore in revenues last year, which are projected to rise to Rs 3,500-3,700 crore this year, reports said.
India Ratings & Research highlighted the rising presence of the company in the eastern region on July 2, 2020. “JSW Cement is likely to generate volumes from the newly commissioned Jajpur plant and increased utilisation in Salboni in FY21, backed by a better demand outlook in the eastern region and lower disruption from COVID-19,” the rating agency said.
The agency also indicated that the company’s EBITDA/tonne remains exposed to the group’s ability to maintain its operating parameters amid the inherent cyclical trends in the demand and supply of cement. But was quick to add that this risk is "partially mitigated by the company’s adequate raw material linkages and strong business profile”.
Striking deals in the cement sector
In M&A activity earlier this year, the Emami Group sold its cement business to the Nirma group for an enterprise value of ₹5,500 crore in February, in a bid to reduce their debt burden.
According to experts tracking the cement sector, currently valuations are pegged at $110-$140 per tonne depending upon the state and location. National and larger players trade at $150-$200 per tonne, these experts said.
India is the second largest cement producer in the world and accounts for over 8 percent of the global installed capacity as of 2019.
Ultratech Cement is the market leader by far followed by players like Ambuja Cement, ACC, Shree Cement and others.
Due to the increasing demand in various sectors such as housing, commercial construction and industrial construction, the cement industry is expected to reach 550-600 mtpa by the year 2025.
