The Aditya Birla Group company UltraTech Cement on Tuesday announced the acquisition of Jaiprakash Associates' two cement units and associated power plants in Madhya Pradesh for Rs 5,400 crore. For a company with debt of around Rs 60,000 crore, Jaypee Group has little other option, but to sell its assets, says Mangesh Bhadang, cement, construction analyst at Quant Broking.
He sees JP Group selling some more assets in the near term.
Bhadang believes despite the high valuation, this acquisition will be positive for UltraTech considering the footprint it would provide them. He has a buy rating on UltraTech with a target price of Rs 2,500 per share.
Below is the verbatim transcript of Mangesh Bhadang's interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.
Latha: Just tell us how should a Jaypee investor look at this deal, what is left in terms of revenues and earnings?
A: For Jaypee Group, they had no option but to sell the assets. They have come up to the assets which were giving them cash flows and it will continue for sometime because even if you look at the total debt of almost Rs 60,000 crore this doesn’t even touch 10 percent of the total. So, still there would be certain more assets which would be on the block going forward and basically for JP as soon as they do the demobilisation of assets it is good for them.
Sonia: What does an Ultratech Cement investor do now post this deal?
A: It is a positive move for Ultratech. So even though they may have paid a slightly higher acquisition cost for this but still if you look at the footprint it can give in the MP and UP market for Ultratech, it is very good and since these were relatively older assets getting them up to mark will not be a problem for a company like Ultratech.
Secondly if they would have had to do the Greenfield expansion that would have taken at least four to five years. So this leads to further consolidation in the market. So, they will be well placed through this acquisition and given the ambitions of the company as well as the growth we expect that they will keep doing pretty well in this segment and they have shown it in the past also in terms of various other acquisitions. So it is a very good proposition for Ultratech shareholders also.
Sonia: Have you scaled up either your earnings estimates or your price target or Earnings Per Share (EPS) target for Ultratech?
A: We have a buy on the company. We have not yet touched the earnings as of now. We are just waiting for detail on this acquisition post which we will do it today.
Latha: What are your price targets and earnings at the moment?
A: So we have a buy rating with a price target of roughly Rs 2,500.
Latha: Is there a view on Jaypee as well, a buy or a sell or a price target?
A: No, I don’t cover Jaypee.
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